Posts Tagged ‘pension crisis’

Texas vs. California Update for May 22, 2017

Monday, May 22nd, 2017

We’re in the home stretch of hammering out the Texas biannual state budget, which has to be completed by May 29. Until then, enjoy another Texas vs. California roundup:

  • Stop me if you’ve heard this before: Texas is once again ranked the best state for business, while California is ranked the worst. (Hat tip: Will Franklin’s Twitter feed.)
  • California’s big-government model eats its young:

    In this era of anti-Trump resistance, many progressives see California as a model of enlightenment. The Golden State’s post-2010 recovery has won plaudits in the progressive press from the New York Times’s Paul Krugman, among others. Yet if one looks at the effects of the state’s policies on key Democratic constituencies— millennials, minorities, and the poor—the picture is dismal. A recent United Way study found that close to one-third of state residents can barely pay their bills, largely due to housing costs. When adjusted for these costs, California leads all states—even historically poor Mississippi—in the percentage of its people living in poverty.

    California is home to 77 of the country’s 297 most “economically challenged” cities, based on poverty and unemployment levels. The population of these cities totals more than 12 million. In his new book on the nation’s urban crisis, author Richard Florida ranks three California metropolitan areas—Los Angeles, San Francisco, and San Diego— among the five most unequal in the nation. California, with housing prices 230 percent above the national average, is home to many of the nation’s most unaffordable urban areas, including not only the predictably expensive large metros but also smaller cities such as Santa Cruz, Santa Barbara, and San Luis Obispo. Unsurprisingly, the state’s middle class is disappearing the fastest of any state.

    California’s young population is particularly challenged. As we spell out in our new report from Chapman University and the California Association of Realtors, California has the third-lowest percentage of people aged 25 to 34 who own their own homes—only New York and Hawaii’s are lower. In San Francisco, Los Angeles, and San Diego, the 25-to-34 homeownership rates range from 19.6 percent to 22.6 percent—40 percent or more below the national average.

  • California continues to slouch toward socialized medicine. “California’s current system relies in large part on employer-sponsored insurance, which is still the source of health care coverage for tens of millions of people. That coverage would disappear under SB 562. Instead of receiving coverage financed by their employers, working Californians would see a tax increase of well over $10,000 per year for many middle-income families.” (Hat tip: Legal Insurrection.)
  • “If you live in California, have a job and pay taxes Governor Jerry Brown would like you to know that you’re a freeloader and he’s tired of your complaining.”
  • “Congratulations, California. You keep electing these same Democrats over and over again. and then you act surprised when they make you one of the most heavily taxed populations in the country. And when you finally raise your voices to protest the out of control taxation and spending, the state party’s titular leader is brazen enough to come straight out and tell you what he really thinks of you.”
  • Has the Democrats latest gas tax hike created an actual tax revolt in California? (Hat tip: Ace of Spades HQ.)
  • One lawmaker is the target of a recall petition over the tax hike: “Perceived as the most vulnerable of the legislative Democrats who passed Gov. Jerry Brown’s gas and vehicle tax package by a razor-thin margin, freshman state Sen. Josh Newman, D-Fullerton, faced an intensifying campaign to turn him out of office, potentially depriving his party of the two-thirds majority that allowed them to pass Brown’s infrastructure bill in the first place.”
  • Vance Ginn’s monthly summary of Texas economic data. Lot’s of data, including the fact that all major Texas cities created jobs in 2016 except Houston, which was down just a smidge.
  • San Bernardino could go bankrupt again.
  • Buying a house in Southern California is insane. (Hat tip: Stephen Green at Instapundit.)
  • California starts selling bonds for the doomed “high speed rail.”
  • 40-60 “youth” flash mob robs passengers on Oakland BART train. The complete absence of descriptions or pictures cues the astute modern American reader in to the ethnic makeup of the mob. (Hat tip: Ace of Spades HQ.)
  • “Gov. Jerry Brown and state Treasurer John Chiang have a plan to help cover the state’s soaring pension payments: Borrow money at low interest rates and invest it to make a profit. What could go wrong?” I can see it now: “Come on seven! Baby needs a new High Speed Rail!” Also this: “The problem was exacerbated because Brown’s so-called pension “reform” of 2012 failed to significantly rein in retirement costs. Statewide pension debt has increased 36 percent since his changes took effect.” (Hat tip: Pension Tsunami.)
  • “Riverside utilities dispatcher triples salary to nearly $400,000 with state’s 10th largest overtime payout.” (Hat tip: Pension Tsunami.)
  • And speaking of California public employees working overtime:

    The time cards Oakland city worker Kenny Lau turned in last year paint a stunning, if not improbable, picture of one man’s work ethic.

    Lau, a civil engineer, often started his days at 10 a.m. and clocked out at 4 a.m., only to get back to work at 10 a.m. for another marathon day. He never took a sick day. He worked every weekend and took no vacation days.

    He worked every holiday, including the most popular ones that shut down much of the nation’s businesses: 12 hours on Thanksgiving and eight hours on Christmas.

    In fact, his time cards show he worked all 366 days of the leap year, at times putting in 90-plus-hour workweeks. He worked so much that he quadrupled his salary. His regular compensation and overtime pay — including benefits, $485,275 — made him the city’s highest-paid worker and the fourth-highest overtime earner of California public employees in 2016.

    (Hat tip: Pension Tsunami.)

  • The Los Angeles Unified School District has decided it can break federal immigration laws at will. “No immigration officers will be allowed on campus without clearance from the superintendent of schools, who will consult with district lawyers. Until that happens, they won’t be let in, even if they arrive with a legally valid subpoena.” There’s no way such a genius decision could possibly backfire on them… (Hat tip: Director Blue.)
  • How California hurts the poor by jacking up traffic fines. (Hat tip: Pension Tsunami.)
  • “San Diego using loophole to hand out large raises during pay freeze.” It’s a blatant attempt to evade Proposition B.
  • An auditor funds the University of California President’s office of Janet Napolitano had a secret slush fund:
    • The Office of the President has accumulated more than $175 million in undisclosed restricted and discretionary reserves;
      as of fiscal year 2015–16, it had $83 million in its restricted reserve and $92 million in its discretionary reserve.

    • More than one-third of its discretionary reserve, or $32 million, came from unspent funds from the campus assessment—an annual charge that the Office of the President levies on campuses to fund the majority of its discretionary operations.
    • In certain years, the Office of the President requested and received approval from the Board of Regents (regents) to
      increase the campus assessment even though it had not spent all of the funds it received from campuses in prior years.

    • The Office of the President did not disclose the reserves it had accumulated, nor did it inform the regents of the annual undisclosed budget that it created to spend some of those funds. The undisclosed budget ranged from $77 million to
      $114 million during the four years we reviewed.

    • The Office of the President was unable to provide a complete listing of the systemwide initiatives, their costs, or an assessment of their continued benefit to the university.
    • While it appears that the Office of the President’s administrative spending increased by 28 percent, or $80 million, from fiscal years 2012–13 through 2015–16, the Office of the President continues to lack consistent definitions of and methods for tracking the university’s administrative expenses.

    An Ex-Obama Administration official with a secret slush fund? What are the odds?

  • Texas continues to attract net in-migration from every region.
  • California wants to tax rockets launched from California into orbit, based on miles traveled away from California. I’m sure many of Texas own spaceflight companies will welcome any business California drives out…
  • Speaking of spaceflight, Elon Musk’s Space X, just like Telsa, is more emblematic of subsidies and special favors than the free market:

    Tesla survives on the back of hefty subsidies paid for by hard-working Americans just barely getting by so that a select few can drive flashy, expensive electric sports cars. These subsidies were originally scheduled to expire later this year, and Tesla is lobbying hard to make sure that taxpayers continue to pay $7,500 per car or more to fund their business model. Tesla even tried to force taxpayers to pay for charging stations that would primarily benefit their business. That is not what Musk’s high priced image managers will tell you, but it’s the truth.

    SpaceX is even worse — its business model isn’t to invest its money developing competing space products that meet the same safety and reliability standards as the rest of the industry. Instead, its business model is to get billions in taxpayer money and push, bend, and demand regulatory special favors. Then, it produces a rocket that is more known for failed launches, long delays, and consistently missed deadlines.

  • How California’s air emission rules went to far.
  • “California may end ban on communists in government jobs.” (Hat tip: Ace of Spades HQ.)
  • Bachrach Clothing Stores File for Bankruptcy Protection in Los Angeles.”
  • “California solar installer HelioPower filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Nevada.”
  • Hudson Products relocating from Tulsa to Rosenberg, Texas.
  • “Bay Area bookseller Bill Petrocelli is filing a lawsuit against the state of California, hoping to force a repeal of the state’s controversial ‘Autograph Law.’ The law, booksellers claim, threatens to bury bookstore author signings under red tape and potential liabilities. Petrocelli, co-owner of Book Passage, filed Passage v. Becerra in U.S. District Court for the North District of California, pitting the bookstore against California State Attorney General Xavier Becerra.” As a bookseller on the side, I can tell you that California’s law is particularly asinine and is completely ignorant of the signed book trade.
  • Texas vs. California Update for April 20, 2017

    Thursday, April 20th, 2017

    This didn’t get done while I was doing my taxes, but here, at last, is another giant Texas vs. California update:

  • Appeals court finds San Diego’s pension reform legal. “California’s Fourth District Court of Appeal unanimously overturned a 2015 state labor board ruling that said the cutbacks were illegal because of then-Mayor Jerry Sanders’ involvement in the successful citizens’ initiative that made the changes.” San Diego transitioned to a 401K style program. Naturally public employee unions screamed bloody murder and sought to have the reforms overturned. (Hat tip: Pension Tsunami.)
  • Unions attempts to role back San Diego’s pension reforms amounted to an attempt to retroactively apply collective bargaining to older laws.
  • More: It’s “shocking the agency’s officials would have even argued that a union’s right to negotiate pay and benefits trumps the public’s right to hold an election.” (Hat tip: Pension Tsunami.)
  • “The number of people enrolled in Medicaid and the Children’s Health Insurance Program (CHIP) in California alone exceeds the total populations of 44 of the other states of the union, according to data published by the Centers for Medicare and Medicaid Services (CMS) and the Census Bureau.” (Hat tip: Director Blue.)
  • California exports its working poor to Texas.

    Every year from 2000 through 2015, more people left California than moved in from other states. This migration was not spread evenly across all income groups, a Sacramento Bee review of U.S. Census Bureau data found. The people leaving tend to be relatively poor, and many lack college degrees. Move higher up the income spectrum, and slightly more people are coming than going.

    About 2.5 million people living close to the official poverty line left California for other states from 2005 through 2015, while 1.7 million people at that income level moved in from other states – for a net loss of 800,000. During the same period, the state experienced a net gain of about 20,000 residents earning at least five times the poverty rate – or $100,000 for a family of three.

    Snip.

    The leading destination for those leaving California is Texas, with about 293,000 economically disadvantaged residents leaving and about 137,000 coming for a net loss of 156,000 from 2005 through 2015. Next up are states surrounding California; in order, Arizona, Nevada and Oregon.

  • Hat tip for the above is this Zero Hedge piece, which notes “By some measures, California has the highest poverty rate in the nation. And as more and more residents leave, the burden to fund the state’s welfare exuberance will fall more and more on the wealthier (that actually pay taxes). Rather than secession, perhaps it’s time for the wealthy to join ‘the poor’ exodus and beat the crowd out of California…”
  • A look at a California tent city of 1,000 people.
  • Kevin Williamson on why Houston’s diversity is different than the liberal ideal of same:

    Living in a place where it is less of a struggle to pay the rent or make the mortgage payment does indeed chill most everybody out a little bit. But it is not at all obvious that what Houston — or Texas at large — enjoys is in fact a culture that is generally welcoming to immigrants in a way that is different from Scottsdale or Trenton or Missoula. What Texas does have is something close to the opposite of that: a large and very well-integrated Mexican-American community. Anglos in Texas aren’t welcoming to Latinos because we are in some way uniquely open to the unfamiliar, but because they are not unfamiliar.

    This matters in ways that are not obvious if you didn’t grow up with it. My native West Texas, along with the whole of the border and much of the rest of the state, has a longstanding, stable Anglo–Latin hybrid culture. Houston does, too, but Houston, being a very large city, is a little more complicated; I had lunch yesterday with a conservative leader who chatted amiably with the staff in Spanish at . . . an Indian restaurant.

    That robust hybrid culture ensures that the people Anglos hear speaking Spanish are not always poor, not mowing the lawn or cleaning a hotel room, that they are not usually immigrants, not people who cannot speak or read English — not alien. They are neighbors who, if you are lucky, make Christmas tamales. And they might be your employer or your employee, the guy who sells you a car or approves your car loan, a pastor at your church, a professor, a member of your Ultimate Frisbee team . . . or an illegal immigrant, or a criminal, or someone who is in some way unassimilated, alien, or threatening. When one out of three people in your county is “Hispanic” — a word that in Texas overwhelmingly means “Mexican-American” — then you tend to know Hispanic people of all descriptions: the good, the bad, and the ordinary.

    That is not the case in, say, Arlington, Va., which does not have a large and well-assimilated Mexican-American population but does have a large and poorly assimilated population of Spanish-speaking immigrants. The two things are not the same — more like opposites. Add to that the fact, sometimes lost on Anglos, that there is no such thing as a “Hispanic” culture or population, that people with roots in Mexico do not think of themselves as being part of a single cultural group that includes people from Central America and South America. A while back, I heard an older fellow of Mexican background complaining about the Guatemalans moving into his area — and he was an illegal immigrant. That’s a funny reality: In Texas, even some of the illegals don’t think that we can let just anybody cross the border. But ethnic politics is a strange business: In West Texas, young whites without much money (college students and the like) who would never for a moment seriously consider moving into a low-income black neighborhood will not give a second thought to moving into a largely Hispanic neighborhood.

    All of which is not to say that Texas does not have a fair number of poorly assimilated Spanish-speaking immigrants: It surely does, especially in the big cities. (People forget how urban Texas is: Six of the 20 largest U.S. cities are in Texas.) But it is easier to accommodate — and, one hopes, to assimilate — those newcomers when you have a culture of mutual familiarity and trust, which is based not on newcomers but on oldcomers. Texas’s ancient Mexican-American community — whose members famously boast, “We didn’t cross the border, the border crossed us!” — is a kind of buffer that makes absorbing newcomers less stressful.

  • Leaving coastal California is a ‘no-brainer‘ for some as housing costs rise.”

    Huntington Beach residents Chris Birtwistle and Allison Naitmazi were about to get married and decided it was time to buy a home.

    They wanted to stay in the area but couldn’t find a house they both liked and could reasonably afford — despite a dual income of around $150,000.

    So they decided to go inland — all the way to Arizona, where they recently opened escrow on a $240,000, four-bedroom house with a pool just outside Phoenix. Their monthly mortgage payment will be about $500 less than what they paid for a two-bedroom apartment in the Orange County beach community.

  • “California again leads list with 6 of the top 10 most polluted U.S. cities.” Versus zero for Texas. So they have the nation’s most stringent pollution laws…and the nation’s worst air pollution. (Golf clap) (Hat tip: Chuck DeVore’s Twitter feed.)
  • 16 Reasons Not To Live In California. Samples (snippage implied):

    #2 Out of all 50 states, the state of California has been ranked as the worst state for business for 12 years in a row…
    #3 California has the highest state income tax rates in the entire nation. For many Americans, the difference between what you would have to pay if you lived in California and what you would have to pay if you lived in Texas could literally buy a car every single year.
    #4 The state government in Sacramento seems to go a little bit more insane with each passing session.
    #5 The traffic in the major cities just keeps getting worse and worse. According to USA Today, Los Angeles now has the worst traffic in the entire world, and San Francisco is not far behind.

  • CalSTRS’ funded status falls to 64% as deficit grows $21 billion following rate reduction.” (Hat tip: Pension Tsunami.)
  • Texas is on its way to passing a conservative budget.
  • A Democrat-sponsored bill in the California legislature guarantees free healthcare for all, without specifying a way to pay for it. Maybe they’ll institute a unicorn tax… (Hat tip: Stephen Green at Instapundit.)
  • Leslie Eastman at Legal Insurrection spells out exactly what Californians would actually get under the plan:
    • With no choice, there is no competition, unless you are wealthy enough to leave the state for medical care. However, this is a golden opportunity for medical tourism companies!
    • There will be a limited supply of doctors, as those who don’t want to go through the bureaucratic hoops for procedures and payment will also leave the state.
    • Clinicians will be forced to make their treatment decisions based on the state-run rules: Why choose surgery when a pill will do?
    • Shockingly, some funds need to be directed to other budget items instead of perks for illegal aliens (refer to Oroville Dam for a handy reference).
    • Medicare, the system that is the foundation for this proposal, is rife with waste, fraud and abuse (e.g., 3 Floridians bilked the system for $1 billion).
    • Co-pays and deductibles will be transformed into monies paid for non-state government healthcare services (like the Canadians who cross into the United States to obtain MRI’s and other innovative treatments).
    • Public oversight will translate into political wheeling-and-dealing strictly for the benefit of those plugged into the rigged system. An indication that Sacramento may be headed for such a system, I offer this piece published in The Sacramento Bee for consideration: Why California must accept more corruption.
    • The cost of drugs has soared, despite Obamacare. As an example, I had a skin medication that would cost me $150 for an annual supply. The same medication now costs nearly $1000 a year, and I no longer use it.
  • In order to further bestow members of the ruling Democratic coalition with rights and privileges mere citizens don’t enjoy, California’s Senate Bill 807 proposes making teachers exempt from state income tax. Some pigs are evidently way, way more equal than others…
  • Teacher’s unions have helped create California’s teacher shortage. (Hat tip: Pension Tsunami.)
  • California hikes its gas taxes yet again, making them the highest in the nation.
  • Pension liabilities are pinching in Gilroy, California: “Gilroy’s three biggest public employers have amassed more than $183 million in unpaid pension liabilities. That’s likely more than ever, and a figure that, absent major reform, will grow and siphon budget funds from essential public services, say officials and pension experts. In Gilroy, 23 city pensions exceed $100,000 and more than 60 exceed $70,000.” (Hat tip: Pension Tsunami.)
  • Court to determine whether California’s public employee union members can simply continue to buy years of service rather than actually working them.
  • Silicon Valley slows down. “Tech companies in San Francisco and San Mateo counties lost 700 jobs from January to February and tech employment has dropped by 3,200 jobs since hitting a peak last August.”
  • What the lords of Silicon Valley actually think: “Inequality is a feature, not a bug.”
  • Hold on to your seats for this one: California’s government actually did something right, legalizing the selling of home-made food. (Hat tip: Instapundit.)
  • “Hotel construction continues apace in the United States, and dozens of new properties are expected to open this year in two major corporate and tourist destinations, New York and Los Angeles. But the three other cities with the most hotels projected to open in 2017, according to the industry research company STR, are all in Texas — Dallas, Houston and Austin.” Notice the implied condescension in the NYT piece: New York and LA are real places, whereas Dallas, Houston and Austin are “other cities.”

    More:

    The number of new hotels in Texas is notable. In 2017, Marriott plans to open eight hotels in Austin, seven in Houston and 23 in the Dallas-Fort Worth area, according to the company. Ninety-two other Marriott hotels are in the planning stages for the three metro areas. Hilton says it is planning for 75 new hotels there. InterContinental Hotels Group has more than 100 hotel projects in the Austin, Dallas and Houston metro areas, including the Candlewood Suites, Crowne Plaza, Even Hotels, Holiday Inn Express, Holiday Inn, Hotel Indigo, InterContinental Hotels and Resorts and Staybridge Suites brands.

    Austin is home to the state capital; the University of Texas at Austin, a campus with 50,000 students; and a long list of technology companies. Its growing recreation and dining scene is attracting more leisure travelers, filling guest rooms on weekends and making the city “more of a seven-day-a-week hotel market,” according to Tim Powell, the managing director for development for Hilton’s southwest region.

  • A bankruptcy judge in the Eastern District of California plays Santa Claus with a bank’s money.
  • Just what illegal aliens cost California.
  • “L.A. To Worsen Housing Shortage With New Rent Controls.”
  • “California Dems Promise Taxpayer Dollars to Defend Illegal Immigrants.” (Hat tip: Stephen Green at Instapundit.)
  • Calpers Is Sick of Paying Too Much for Private Equity…Pension fund’s private-equity returns were 12.3% over 20 years, but they would have been 19.3% without fees and costs.” (WSJ hoops apply.) (Hat tip: Pension Tsunami.)
  • “Texas top state for number of new, expanded corporate facilities for fifth consecutive year.”
  • It’s not just Oroville Dam that needs maintenance: a section of Highway 50 collapsed in February. (Hat tip: Director Blue.)
  • “Jerry Brown wants to spend nearly $450 million on flood control following dam emergency.”
  • “A state senator is removed from the chamber for her comments about Tom Hayden and Vietnam.” Namely for noting that Hayden supported “a communist government that enslaved and/or killed millions of Vietnamese, including members of my own family.” Sen. Janet Nguyen (R-Garden Grove) came to America as a Vietnamese refugee, and Democrats were incensed she was allowed to speak truth to power when it came to hagiography for one of their own. (Hat tip: Instapundit.)
  • Crime Increasing in California After ‘Prison Reform.'”
  • Selling carbon indulgences just isn’t what it used to be under Trump:

    February’s quarterly auction of carbon dioxide emission allowances under California’s cap and trade program was another financial washout for the state.

    Results for last week’s auction were posted Wednesday morning, revealing that just 16.5 percent of the 74.8 million metric tons of emission allowances were sold at the floor price of $13.57 per ton.

    The state auctions emission allowances to polluters and speculators as part of its program to reduce greenhouse gases. The proceeds are supposed to be spent on public programs to slow climate change.

    February’s auction is being closely watched by market analysts because the last three quarterly auctions in 2016 posted sub-par results.

    Almost all of February’s proceeds went either to California’s utilities, who sell allowances they receive free from the Air Resources Board, or the Canadian province of Quebec, which offers emission allowances through California. Both are first in line when auction proceeds are apportioned.

    The ARB was offering 43.7 million tons of state-owned emission allowances, but sold just 602,340 tons of advance 2020 allowances, which means the state will see only $8.2 million, rather than the nearly $600 million it could have received from a sellout.

    (Hat tip: Chuck DeVore on Twitter.)

  • California’s high speed train-to-nowhere is still doomed.
  • “Six former LA safety officers collected pension payouts of over $1,000,000 apiece last year.” (Hat tip: Pension Tsunami.)
  • “Oakland Fire Chief Announces Retirement Days After Pension Vested, Warehouse Fire Probe Continues.”
  • San Rafael has the the highest pension costs in California by percentage of their total budget (18%). “Money that goes to one thing can’t go to another thing, so if you’re spending almost $1 out of $5 on pension payments, that is a lot less money available for tangible public services such as filling potholes, keeping the library open and making sure there is sufficient police protection.”
  • Remember Anthony Silva, mayor of formerly bankrupt Stockton? He’s been arrested again, this time for embezzling “at least $74,000 from the Stockton Kids Club over the past five years.” That would be the same Anthony Silva who is a member of Mayors Against Illegal Guns, whose own guns were stolen and used in crimes, and who was also arrested for “for playing strip poker with minor and giving them alcohol while at a youth camp.” Given such august leadership, I can’t imagine how Stockton went bankrupt… (Hat tip: Dwight.)
  • New survey of the Permian Basin in Texas shows that there’s another 20 billion barrels of recoverable oil than previously thought.
  • More on the fracking boom:

  • Minimum wage hike watch: Wendy’s to try out more than 1000 self-serve kiosks.
  • San Francisco’s wage hike is already closing restaurants. Especially those that serve affordable food. (Hat tip: Instapundit.)
  • California’s “hide actor’s age” law struck down.
  • “Former L.A. County Sheriff Lee Baca found guilty on obstruction of justice and other charges.” (Hat tip: Dwight.)
  • I would like to celebrate Austin Austin having the shortest commute time in this study of major cities except, since I now experience that commute time every weekday, I can tell you that 16 minute estimate is utter crap. Maybe Austin is the best if the commute time for other cities is similarly underestimated. By contrast, the Austin rental rate of $476 a week seems slightly high, while the London rate of $489 a week seems way too low…
  • Kubota Tractor Corp. finished its’ U.S. headquarters from Torrance, California, to Grapevine, Texas. (Previously.)
  • “West Plano’s $3 billion Legacy West development has landed another big name business. Boeing will locate the headquarters for its newly formed global services division in the 250-acre mixed-use project at the Dallas North Tollway and State Highway 121.”
  • Los Angeles-based fashion company Nasty Gal declares bankruptcy. Also, nice proofreading on this subhead, LA Times: “Why couldn’t they the company hold on to shoppers?” Note: That’s still up for a story published February 24th…
  • Los Angeles clothing brand BCBG Max Azria Group, owner of Hervé Leger, also filed for bankruptcy.
  • The City of St. Louis sues the NFL, and all 32 NFL teams, over the Rams relocation to Los Angeles.
  • “L.A. County Sheriff’s Department switches from silver to gold belt buckles at a cost of $300,000.” That’s some might fine resource allocation there, Lou… (Hat tip: Stephen Green at Instapundit.)
  • Texas vs. California Update for January 12, 2017

    Thursday, January 12th, 2017

    It’s been a long time since I compiled one of these, so this is going to be monstrously large. Also, just as I was finishing this up, the San Diego Chargers announced they were moving to Los Angeles. Hell, LA has proven in the past it’s incapable of adequately supporting one NFL franchise, much less two…

  • When you look at the full recession records, not just the last few years, Texas is still kicking California’s ass. “Over that time frame, Texas has grown more than THREE TIMES FASTER than California. Actually 3.4 times faster (Texas grew at a 4.1% annual rate vs. 1.2% for California).” (Hat tip: Pension Tsunami.)
  • “A just released study calculates the total state and local government debt in California as of June 30, 2015, at over $1.3 trillion.” (Hat tip: Pension Tsunami.)
  • California faces its first budget deficit since 2012. Or at least it’s first official deficit since then. (Hat tip: Pension Tsunami.)
  • A second judge, this one on the California First District Court of Appeal, rules that public pensions may be modified.
  • The California Democratic Party has gone hard left, and it’s taking the rest of the state with it:

    Increasingly, inside the party, it’s been the furthest Left candidates that win. In the Democrat-only Sanchez vs. Harris race for the U.S. Senate, the more progressive candidate triumphed easily, with a more moderate Latina from Southern California decimated by the better funded lock-step, glamorous tool of the San Francisco gentry Left.

    Gradually, the key swing group — the “business Democrats” — are being decimated, hounded by ultra-green San Francisco billionaire Tom Steyer and his minions. No restraint is being imposed on Gov. Brown’s increasingly obsessive climate change agenda, or on the public employee unions, whose pensions could sink the state’s finances, particularly in a downturn.

    The interior parts of California already rank near the bottom, along with Los Angeles, in terms of standard of living — by incomes, as opposed to costs — in the nation. Compared to the Bay Area, which now rules the state, the more blue-collar, Latino and African American interior, as well as much of Los Angeles, account for six of the 15 worst areas in terms of living standard out of 106 metropolitan areas, according to a recent report by Center for Opportunity Urbanism demographer Wendell Cox.

    Given the political trends here, it’s hard to see how things could get much better. The fact that most new jobs in Southern California are in lower-paying occupations is hardly promising. In contrast, generally better-paying jobs in manufacturing, home-building and warehousing face ever-growing regulatory strangulation.

    Sadly, the ascendant Latino political leadership seems determined to accelerate this process. In both Riverside and San Bernardino, pro-business candidates, including San Bernardino Democrat Cheryl Brown, lost to green-backed Latino progressives.

    For whatever reason, Latino voters and their elected officials fail to recognize that the increasingly harsh climate change agenda represents a mortal threat to their own prospects for upward mobility. Before this week’s election, California policy makers could look forward to Washington imposing such policies on the rest of the country; now our competitor regions — including Utah, Arizona, Nevada and Texas — can double down on growth. Expect to see more migration of ambitious Californians, particularly Latinos, to these areas.

    California is on the road to a bifurcated, almost feudal, society, divided by geography, race and class. As is clear from the most recent Internal Revenue Service data, it’s not just the poor and ill-educated, as Brown apologists suggest, but, rather, primarily young families and the middle-aged, who are leaving. What will be left is a state dominated by a growing, but relatively small, upper class, many of them boomers; young singles and a massive, growing, increasingly marginalized “precariat” of low wage, often occasional, workers.

  • Sanctuary cities might drive California into bankruptcy:

    California is about to face the music as Donald Trump becomes 45th President of the United States. Their Sanctuary Cities violate federal law and after Jeff Sessions is confirmed as Attorney General (and he will be), they are going to either have to knock that off or have funding to their law enforcement and their government stripped away. Sessions can’t wait and I have to say, I will enjoy watching this showdown. Los Angeles Mayor Eric Garcetti said that Trump pulling 37% of federal funding for their governments would cause chaos and upheaval. Yes, it will… it will also cause California to go absolutely toes up bankrupt.

    It’s simple. They can either follow the rule of law, or the free flow of money from DC gets cut off. In 2015, that amounted to about $93.6 billion. That’s a lot of money to turn away because you insist on not following the law. Let’s see how long that lasts. I love the thought of this. It’s about time Sanctuary Cities were stopped and this is an excellent way to do it. New York, Chicago and DC will all face the same choice by the way. Imagine the meltdown. Good times.

  • “California paid LESS to the feds per capita than Texas. California got MORE back per capita from the feds than Texas.” Freeloaders love the Blue State model… (Hat tip: Pension Tsunami.)
  • Another way of looking at California’s economy:

    California has 39 million people — 43% larger than the 2nd largest state (Texas). Such GDP comparisons don’t tell us much in terms of the PROSPERITY of a nation. Or a state.

    The proper comparison is PER CAPITA GDP. Using that more meaningful figure, CA is the 10th most prosperous state.

    But an even MORE accurate comparison is to take the per capital GDP and adjust it for COL. Because of California’s high taxes, crazy utility laws, stifling regulations (paid by consumers) and sky-high housing costs, CA in 2014 ranked WAY down in 37th place. Only 13 states were worse.

    (Hat tip: Pension Tsunami.)

  • Same as it ever was:

    Governor Jerry Brown announced today that the budget was $1.4 billion in deficit. At the end of last year, the state announced that it was giving state employees a raise which would cost taxpayers over $2 billion over the next four years. Do you think there is a connection?

    A story ran locally in Southern California saying that over 105 employees in Santa Monica, a medium sized city, earn over $300,000 a year. The Governor of the state of California earns $174,000 per year. If you do the research, you will find that there are over 200 state employees that earn more than that

    When I was deciding what I wanted to do in my younger years, my mother told me I should go to work for the government, good benefits she said. I knew I would be bored and would die young if I became a government drone. My little sister listened to her. Today, my little sister is retired on a great government pension, I still fight to pay my taxes. Given the pay that even the lowest government official receives, my mother was right.

    Our government pension system is over $500 billion upside down. Retired state employee health benefits add an additional $300 billion or more to that deficit. The system is out of control. Pay and benefits to government employees at state and local levels is incomprehensible, and the government leaders still come to you and I and ask us to foot the bill for their indulgences.

    What is even more evil about the system is that government unions, led by thugs who force people to pay union dues for the privilege of having a government job, take the money from the government employees and put it into the political system to pay for the campaigns of the Governor, statewide elected officials, legislators and city councils with whom these unions then negotiate for the out-of-control pay and benefits. If anyone tries to limit them, as I once tried by tying everybody’s salaries to the Governor’s salary, they are marked for political defeat. And the system perpetuates itself, taxes to employees to unions to politicians, as it did in the Soviet Union, until the whole system collapses.

    (Hat tip: Pension Tsunami.)

  • California has stopped growing:

    Driven by rising out-migration and falling birth rates, California’s population growth has stalled, leading analysts to consider a possible forecast of a so-called “no-growth” period in the future.

    Although Americans nationwide have been flooding south and west for years, the Golden State has become an exception. Nearly 62 percent of Americans lived in the two regions, Justin Fox observed from Census figures. “That’s up from 60.4 percent in the 2010 census, 58.1 percent in 2000, 55.6 percent in 1990 — and 44 percent in 1950. The big anomaly is California, which is very much in the West, yet has lost an estimated 383,344 residents to other states since 2010.”

    “The state’s birth rate declined to 12.42 births per 1,000 population in 2016 — the lowest in California history,” the San Jose Mercury News noted, citing a state Department of Finance report. “In 2010, the last time figures were compiled, the birth rate was 13.69 per 1,000 population.”

  • California Democrats legalize child prostitution.” (Hat tip: Ed Driscoll at Instapundit.)
  • Some are objecting to the term “legalization”.
  • California Democrats vote to line Eric Holder’s pockets:

    Last week California’s progressive lawmakers announced that they’ve put former Attorney General Eric Holder, now a Covington & Burling partner, on retainer as the state’s outside counsel. “This is potentially the legal fight of a generation, and with Eric Holder we’ve added a world-class lawyer,’’ said Senate majority leader Kevin de León.

    This is odd. Typically states hire outside counsel for help with specific cases, but the legislature is paying Mr. Holder $25,000 a month for three months under the initial contract, apparently for 40 hours a month and the privilege of his attention if something comes up.

  • At least one California assemblyman thinks that the Holder deal is illegal. “California courts have interpreted the civil service mandate of article VII of forbidding private contracting for services that are of a kind that persons selected through civil service could perform ‘adequately and competently.'”
  • In California, robots are replacing people in warehouse work. The minimum wage is mentioned, but only in passing.
  • California is the state third most likely to enter a death spiral in a recession. (Hat tip: Director Blue.)
  • “San Diego County Board of Supervisors voted Tuesday to increase their own salaries by more than $19,000 a year, despite public comment from dozens of opponents.”
  • “California state firefighters will receive substantial raises of up to 13.8 percent this year, according to newly released details from a proposed contract that their union negotiated just before Christmas.” Just the thing a state with a budget deficit needs…
  • “The evidence is clear that standards of living are substantially higher in Texas than in California, which has a model of excessive government.” More: “During the last decade, economic growth in the real private sector has increased by 29 percent in Texas compared with only 14 percent in California. Job creation increased by 1.2 million in California compared with 1.7 million in Texas, which has a labor force two-thirds of that in California. Remarkably, Texas’ job creation was roughly one-third of total civilian employment increases nationwide.”
  • Texas ranked third nationally in economic freedom for the sixth consecutive year. California ranked 49th, just ahead of New York.
  • California Democrats vow to go all-out to keep illegal aliens from being deported. (Hat tip: Instapundit.)
  • CalPERs plans to sell $15 billion worth of equities over the next two years. Also: “CalPERS’ current portfolio is pegged to a 7.5% return and a 13% volatility rate” even though the most recent returns were “a 0.6% return for the fiscal year ended June 30 and a 2.4% return in fiscal 2015.”
  • But the shift from Fantasyland to Reality has been a slow and painful one for CalPERS:

    Overseers of the nation’s largest pension trust fund, the California Public Employees Retirement System (CalPERS), last month reduced – albeit reluctantly – its projection of future earnings by a half-percentage point.

    With earnings on investments the last two years barely exceeding zero, CalPERS has been compelled to sell assets to make its pension payments – which far outstrip contributions from state and local governments and their employees.

    Reducing the “discount rate” to 7 percent will force employers, and perhaps employees, to kick billions of more dollars into the system to slow the growth of CalPERS’ “unfunded liabilities,” as the $150-plus billion debt is termed.

    However, the extra contributions generated by lowering the discount rate will not erase that debt, which is likely to keep growing if CalPERS’ investment earnings continue to fall short, as many economists expect. In fact, CalPERS’ own advisers see a prolonged period of relatively low earnings, and say the system shouldn’t count on more than 6.2 percent.

    Rationally, the discount rate should have been lowered by at least another full percentage point. But CalPERS has already increased its mandatory contributions by 50 percent to make up for investment losses during the Great Recession and other factors, and cutting the discount rate to 6 percent would probably mean bankruptcy for a number of local governments, especially some cities.

    (Hat tip: Pension Tsunami.)

  • And CalPERs needs to do a lot more:

    This is why the CalPERS board must do far more — starting with, on a large scale, finally embracing pension reforms and, on a smaller scale, shuttering an over-the-top corner of the CalPERS website that says it’s a myth that pension costs are crowding out “government services like police and libraries.”

    It’s no myth. The Los Angeles Times reported last month that pensions and retirement health benefits now consume 20 percent of revenue in Los Angeles and Oakland and a stunning 28 percent in San Jose. While the state government is in better shape than most local governments, it’s beginning to feel the strain as well. On Wednesday, Bloomberg reported that beginning in April, the state will increase vehicle registration fees from $46 to $56 to help cover the soaring cost of pensions for California Highway Patrol officers. In 2000, the state had to pay about one-eighth of annual CHP pension costs. Now it must pay about half.

  • “Home values in San Francisco have doubled in a matter of four years. Since 2012 the typical San Francisco home went from $600,000 to $1,200,000. The Bay Area is under a tech based hypnotic spell and foreign money just can’t get enough of million dollar crap shacks in San Francisco. As we all know trees do not grow to the sky with unlimited potential and at a certain point the laws of reality have to hit. Only 11 percent of households in San Francisco can actually afford to purchase the typical $1.2 million crap shack.”
  • San Francisco welcomes immigrants…unless they threaten to move next door. (Hat tip: Ace of Spades HQ.)
  • “New housing data show foreclosure activity in California dropped to an 11-year low in 2016. But the state is still working through a backlog of homes purchased with bad loans during the last housing bubble.”
  • How America’s restaurant bubble is about to burst. Actually, the piece focuses mainly on the impossibility of running a profitable fine dining restaurant in San Francisco and other similarly expensive locales. (Hat tip: Zero Hedge.)
  • “How the University of California exploited a visa loophole to move tech jobs to India.”
  • The Census bureau says that Texas continued to grow in 2016. “Another big gainer was Texas, whose addition of about 433,000 people accounted for 19% of the country’s growth. The state, with 27.9 million people, grew from a relatively strong flow of immigrants and people relocating there from other states.”
  • Texas was second relocation destination choice in 2015:

    Texas experienced a net gain of out-of-state residents in 2015, with 107,689 more people moving to Texas than Texas residents moving out of state. This is a 4 percent increase in the net gain of Texas residents from 2014 (103,465 residents).

    The total number of residents moving to Texas from out of state in 2015 increased 2.8 percent year-over-year to 553,032 incoming residents. The highest number of new Texans came from California (65,546), followed by Florida (33,670), Louisiana (31,044), New York (26,287) and Oklahoma (25,555).

    Texas once again ranked third in the nation for number of residents moving out of state (445,343) in 2015. The most popular out-of-state relocation destinations for Texans were California (41,713), Florida (29,706), Oklahoma (28,642), Colorado (25,268), and Louisiana (19,863).

  • Arizona and Florida managed to dethrone Texas for the relocation top spot for the first time in a dozen years.
  • Why is Austin housing more expensive comapred to other Texas cities? “The reasons vary, but boil down to Austin’s relative unwillingness–thanks to NIMBYism and regulations–to build more housing.”
  • It doesn’t help that Austin is experiencing a net influx of 3,000 Californians a year. Seems like more…
  • California ban on modern sporting rifles went into effect January 1. (Hat tip: Director Blue.)
  • “Police in Kern County, California, have killed more people per capita than in any other American county in 2015.” Caveat the first: The Guardian. Caveat the second: Thanks ever so much for that full-frame background video designed to bring by computer to a screeching halt, Guardian
  • How Marfa, Texas turned itself into an art colony.
  • Students at California law schools are doing horribly on the bar exam. “Law schools are admitting less and less qualified students in an effort to bolster their bottom lines. And why do their bottom lines need to be bolstered? Because they have too many faculty relative to student demand for the schools, and are either reluctant or unable to reduce the size of the faculty to “right size” the law school relative to present demand for the JD.” (Hat tip: Instapundit.)
  • Maybe they should start calling it “North American Apparel“:

    Canadian apparel maker Gildan Activewear Inc. has won a bankruptcy auction for U.S. fashion retailer American Apparel LLC (curxq) after raising its offer to around $88 million, a person familiar with the matter said Monday.

    Gildan’s takeover marks the end of an era for the iconic Los Angeles-based company, which was founded in 1998 by an eccentric Canadian university drop-out and grew to become a part of U.S. popular culture thanks to its racy advertising.

    Gildan will not take any of American Apparel’s 110 stores, but will own its brand and assume some of its manufacturing operations, the source said. The deal is subject to a bankruptcy judge approving it on Thursday.

  • State of California: You can’t mention actresses ages, because Reasons. IMDB: Free speech. Bite me.
  • And if you hadn’t seen them already, two previous BattleSwarm stories that touch on the Texas vs. California issue:

  • Interview with TPPF’s James Quintero on the Texas Municipal Pension Debt Crisis
  • The Texas 85th legislative session opens with budget tightening on the agenda.
  • Interview with TPPF’s James Quintero on the Texas Municipal Pension Debt Crisis

    Monday, January 2nd, 2017

    James Quintero, the Director of the Center for Local Governance at the Texas Public Policy Foundation, was kind enough to provide some detailed answers to questions I sent him about the municipal pension crisis in Dallas and other large Texas cities. My questions are in italics.


    The Dallas police/fireman’s pension fund issue is generally described as stemming from the fund manager’s risky real estate speculation. Are there any additional structural problems that helped hasten that fund’s crisis?

    When it comes to Texas’ public retirement systems, one of my greatest concerns is that there are other ticking time-bombs, like the DPFP, out there getting ready to explode. It’s not just Dallas’ pension plan that’s taken on excessive risk to chase high yield in a low-yield environment.

    Setting aside the issue of risk for a moment, the DPFP, like most other public retirement systems around the state, suffers from a fundamental design flaw. That is, it’s based on the defined benefit (DB) system, which guarantees retirees a lifetime of monthly income irrespective of whether the pension fund has the money to make good on its promises or not. This kind of system is akin to an entitlement program, warts and all, and is very much at the heart of pension crises brewing in Texas and across the country.

    One of the biggest problems with DB plans is that they rely on a lot of fuzzy math to make them work, or at least give the appearance of working. Take the issue of investment returns, for example. Many systems assume an overly optimistic rate of return when estimating a fund’s future earnings. Baking in these rosy projections is, among other things, a way to understate a plan’s pension debt. In an October 2016 study that I co-authored with the Mercatus Center’s Marc Joffe, I wrote the following to illustrate this very point:

    For example, the Houston Firefighters’ Relief and Retirement Fund (HFRRF) calculates its pension liability using a long-term expected rate of return on pension plan investments of 8.5%. During fiscal year 2015, the plan’s investments returned just 1.53%. Over a 7- and 10-year period the rates of return were 6.4% and 7.9%, respectively. Not achieving these investment returns year-after-year can have a dramatic fiscal impact.

    Even a small change in the actuarial assumptions can have major consequences for the fiscal health of a pension fund. According the HFRRF’s 2015 Comprehensive Annual Financial Report, a 1% decrease in the current assumed rate of return (8.5%) would almost double the fund’s pension liabilities, from $577.7 million to $989.5 million.

    So while risky real estate deals were certainly a catalyst in the current unraveling of the DPFP, I suspect that its refusal to move away from the defined benefit model and into a more sustainable alternative—much like the private sector has already done—would have ultimately led us to this same point of fiscal crisis.

    To what legal extent (if any) is Dallas police/fireman’s pension fund backstopped by the City of Dallas and/or Dallas County?

    Let me preface this by saying that I’m not a lawyer nor do I ever intend to be one. However, Article XVI, Section 66 of the Texas Constitution plainly states that non-statewide retirement systems, like DPFP, and political subdivisions, like the city of Dallas, “are jointly responsible for ensuring that benefits under this section are not reduced or otherwise impaired” for vested employees. Given that, it’s hard to see how the city of Dallas—or better yet, the Dallas taxpayer—isn’t obligated in some major way when their local retirement system reaches the point of no return, which may be a lot closer than people think given all the lump-sum withdrawals of late.

    Likewise, does the state of Texas have any statutory backstop to the Dallas police/fireman’s pension fund, or any other local pension funds?

    For non-statewide plans, I don’t believe so. Again, I’m not a lawyer, but the Texas Attorney General wrote something fairly interesting recently touching on aspects of this question.

    In September 2016, House Chairman Jim Murphy asked the AG to opine on “whether the State is required to assume liability when a local retirement system created pursuant to title 109 of the Texas Civil Statutes is unable to meet its financial obligations.” Title 109 refers to 13 local retirement systems in 7 major metropolitans that are a small-but-important group of plans that have embedded some of their provisions in state law (i.e. benefits, contribution rates, and composition of their boards) I’ve written a lot about this problem in the past (read more about it here).

    In response to Chairman Murphy’s question, the AG had this to say:

    In no instance does the constitution or the Legislature make the State liable for any shortfalls of a municipal retirement system regarding the system’s financial obligations under title 109. The Texas Constitution would in fact prohibit the State from assuming such liability without express authorization.

    …a court would likely conclude that the State is not required to assume liability when a municipal retirement system created under title 109 is unable to meet its financial obligations.

    So at least in the AG’s opinion, state taxpayers wouldn’t be required by law to bail out this subset of local retirement systems. But of course, the political calculus may be different than what’s required by law.

    Compared to the Dallas situation, how badly off are the Houston, Austin and San Antonio public employee pension funds?

    If you’re a taxpayer or property owner in one of Texas’ major cities, I’d be concerned. Moody’s, one of the largest credit rating agencies in the U.S., recently found that: “Rapid growth in unfunded liabilities over the past 10 years has transformed local governments’ balance sheet burdens to historically high levels,” and that Austin, Dallas, Houston, and San Antonio had a combined $22.6 billion in pension debt—and it’s growing worse!

    Using the Pension Review Board’s latest Actuarial Valuations Report for November 2016, we can parse the systems within each municipality to get a little bit better sense of where the trouble lies. Pension debt for the retirement systems in the big 4 looks like this:

  • Austin Employees’ Retirement System: $1.1 billion, Austin Police Retirement System: $346 M, and Austin Fire Fighters Relief and Retirement Fund: $93 M;
  • Dallas Employees’ Retirement Fund: $809 M, Dallas Police and Fire Pension System—Combined Plan: $3.3 B, and Dallas Police and Fire Pension System—Supplemental: $23 M;
  • Houston Municipal Employees Pension System: $2.2 B, Houston Firefighters’ Relief and Retirement Fund: $467 M, and Houston Police Officer’s Pension System: $1.2 B; and
  • San Antonio Fire and Police Pension Fund: $360 M.
  • Of course, it’s important to keep in mind that the figures use some of the same fuzzy math as described above, so the actual extent of the problem may be worse than the PRB’s latest figures indicate.

    What similarities, if any, are there to current Texas municipal pension issues and those that forced California cities like San Bernardino, Stockton and Vallejo into bankruptcy? What differences?

    The common element in most, if not all, of these systemic failures is the defined benefit pension plan. Because of the political element as well as the inclusion of inaccurate investment assumptions in the DB model, these plans are almost destined to fail, threatening the taxpayers who support it and the retirees who rely on it. And sadly, that’s what we’re witnessing now across the nation.

    As far as the differences go, California’s municipal bankruptcies as well as Detroit’s were preceded by decades of poor fiscal policy and gross mismanagement. I don’t see that same thing here in Texas, but it’s also important that we don’t let it happen too.

    California pensions were notoriously generous (20 years and out, spiking, etc.). Do any Texas state or local pensions strike you as unrealistically generous?

    Any plan that’s making pension promises but has no plan on how to make good on those promises is being unrealistically generous. And unfortunately for taxpayers and retirees alike, a fair number of plans can be categorized as such.

    The Pension Review Board’s Actuarial Valuations Report for November 2016 reveals that of Texas’ 92 state and local retirement system, only 4 of them are fully-funded. At the other extreme, a whopping 19 of the 92 plans have amortization periods of more than 40 years. Six of those 19 plans have infinite amortization periods, which effectively means that they have no plan to keep their promises but are instead planning to fail.

    As far as specific plans go, there’s no question that the Dallas Police and Fire Pension System is the posterchild for the overly generous. The Dallas Morning News recently covered the surreal levels of deferred compensation offered, finding that:

    The lump-sum withdrawals come from the Deferred Retirement Option Plan, known as DROP. The plan allows veteran officers and firefighters to essentially retire in the eyes of the system and stay on the job.

    Their benefit checks then accrue in DROP accounts. For years, the fund guaranteed interest rates of at least 8 percent. DROP made hundreds of retired officers and firefighters millionaires. And once they stopped deferring the money, they received their monthly benefit checks in addition to their DROP balance. [emphasis mine]

    It’s probably fair to say that any public program that makes millionaires out of its participants is probably being too generous with its benefits.

    There seem to be only two recent local government bankruptcies in Texas, neither of which were by cities: Hardeman County Hospital District Bankruptcy and Grimes County MUD #1. Did either of these involve pension debt issues?

    I’m not familiar with those instances, but when it comes to the issue of soaring pension obligations, I can tell you that the system as a whole is moving in bad direction.

    In November 2016, Texas’ 92 state and local retirement systems had racked up over $63 billion dollars of unfunded liabilities, with more than half owed by the Teacher Retirement System. That’s a staggering amount of pension debt that’s not only big but growing fast. And worse yet, that’s in addition to Texas’ already supersized local government debt-load.

    How we’re going to make good on all of these unfunded pension promises is anyone’s guess. But I imagine that it’ll involve some combination of much higher taxes, benefit reductions, and fewer city services.

    What limits or constraints does Texas place on Chapter 9 bankruptcy?

    The Pew Charitable Trusts’ Stateline has some good information on this, at least as far as municipal bankruptcy is concerned. A November 2011 report, Municipal Bankruptcy Explained: What it Means to File for Chapter 9, had this to say about the process:

    Who can file for Chapter 9? Only municipalities — not states — can file for Chapter 9. To be legally eligible, municipalities must be insolvent, have made a good-faith attempt to negotiate a settlement with their creditors and be willing to devise a plan to resolve their debts. 

They also need permission from their state government. Fifteen states have laws granting their municipalities the right to file for Chapter 9 protection on their own, according to James Spiotto, a bankruptcy specialist with the Chicago law firm of Chapman and Cutler. Those states are Alabama, Arizona, Arkansas, California, Idaho, Kentucky, Minnesota, Missouri, Montana, Nebraska, New York, Oklahoma, South Carolina, Texas and Washington. 

    Hopefully this is a process that can be avoided entirely, but given the fiscal condition of the DPFP and potentially a few other systems, I’m not sure that’ll be the case.

    Next to Dallas, which municipal pensions would you say are in the worst shape?

    I’m most concerned about the local retirement systems in Title 109. The reason, again, is that these 13 local retirement systems are effectively locked into state law and there’s little that taxpayers or retirees in those communities can do to affect good government changes without first going to Austin. These systems have basically taken a bad situation and made it worse by fossilizing everything that counts.

    In the Texas Public Policy Foundation’s 2017-18 Legislator’s Guide to the Issues, I cover this issue in a little more detail. In the article (see pgs. 122 – 124), I write of these plans’ fiscal issues which can be seen below, albeit with slightly older data.

    texaspensiondebtchart

    (Funded ratios marked in red denote systems that are below the 80% threshold, signifying a plan that may be considered actuarially unsound. Source: Texas Bond Review Board.)

    The fact that these systems either are in or are headed for fiscal muck is a big reason why the Texas Public Policy Foundation is helping to educate and engage on legislation that would restore local control of these state-governed pension plans. People on the ground-level should have some say over their local plans, and that’s what we’ll be fighting for next session. Encouragingly, a bill’s already been filed in the Senate (see SB 152) and there should be legislation filed shortly in the House to do just that.

    Should Texas government agencies switched over to defined contribution (i.e. 401K) plans over standard pension plan, and if so, how might this realistically be accomplished without endangering existing retirees?

    ABSOLUTELY. Ending the defined benefit model and transitioning new employees into something more sustainable and affordable, like a defined contribution system, is one of the best things that the state legislature can do. This is something I’ve long been an advocate of.

    In fact, in early 2011, I played a very minor role in the publication of some major research spearheaded by Dr. Arthur Laffer, President Ronald Reagan’s chief economist, that advanced this same reform idea (see Reforming Texas’ State & Local Pension Systems for the 21st Century). I’ve also written a lot about the need to make the DC-switch, making the case recently in Forbes that:

    DC-style plans resemble 401(k)s in the private sector and the optional retirement programs (ORP) available for higher education employees in Texas. These DC-style plans put the power of an individual’s future in their own hands instead of depending on the good fortune of government-directed DB-style plans. DC-style plans are portable and sustainable over the long term as they are based on the contributions of retirees and a defined government match.

    With DC-style plans, retirees will finally have the opportunity to determine how much risk they are willing to take. They also reduce the risk that the government will default on their retirement or fund those losses with dollars from taxpayers who never intended to use these pensions. By giving retirees more freedom on how to best provide for their family, they will be in a much better position to prosper.

    Because of their efficiency, simplicity and fully funded nature, the private sector moved primarily to DC-style plans long ago. For the sake of taxpayers and retirees dependent on government pensions, it’s time for all governments to move to these types of plans as well.

    As far as dealing with transition costs, some much smarter people than I have written on this issue and found that it’s not as big of a challenge as it’s made out to be. Dr. Josh McGee, a vice president with the Laura and John Arnold Foundation, a senior fellow with the Manhattan Institute, and Chairman of the Pension Review Board, had this to say about the matter:

    Moving to a new system would have little to no effect on the current system. State and local pensions are pre-funded systems, and unlike Social Security, the contributions of workers today do not subsidize today’s retirees. Future normal cost contributions are used to fund new benefit accruals that workers earn on a go-forward basis and are not used to close funding gaps. Therefore, it matters little whether the normal cost payments are used to fund new benefits under the current system or a new system.

    (Source: The transition cost mirage—false arguments distract from real pension reform debates.)

    Another pension expert, Dr. Andrew Biggs with the American Enterprise Institute, published research that found that:

    In this study, I show that if a pension plan were closed to new hires, over time the duration of liabilities would shorten, and the portfolio used to fund those liabilities would become more conservative. However, the effects of these transition costs are so small as to be barely perceptible.

    (Source: Are there transition costs to closing a public-employee retirement plan?)

    I’m confident that with the right plan in place, Texas’ state and local retirement systems can make the switch to defined contribution and we’ll be all the better for it.


    Thanks to James Quintero for providing such a detailed analysis!

    And since we’re on the topic, here’s a roundup of news on the Dallas Police and Fireman’s pension fund crisis:

  • The Texas Rangers have launched a criminal probe into the shortfall.
  • City Journal offers details on the unreasonable generosity of the Dallas plan (which covers some of the same DROP issues Quintero mentions):

    Dallas created the police and fire plan in 1916. The system’s trustees eventually persuaded the state legislature to allow employees and pensioners to run the plan. Not surprisingly, the members have done so for their own benefit and sent the tab for unfunded promises—now estimated at perhaps $5 billion—to taxpayers. Among the features of the system is an annual, 4 percent cost-of-living adjustment that far exceeds the actual increase in inflation since 1989, when it was instituted. A Dallas employee with a $2,000 monthly pension in 1989 would receive $3,900 today if the system’s annual increases were pegged to the consumer price index. Under the generous Dallas formula, however, that same monthly pension could be worth more than $5,000. No wonder the ship is sinking.

    The system also features a lavish deferment option that lets employees collect pensions even as they continue to work and earn a salary. Moreover, the retirement money gets deposited into an account that earns guaranteed interest. Governments originally began creating these so-called DROP plans as an incentive to encourage experienced employees to keep working past retirement age, which in job categories like public safety can be as young as 50. In Dallas, the pension system gives workers in the DROP plan an 8 percent interest rate on their cash, at a time when yields on ten-year U.S. Treasury notes, a standard for guaranteed returns, are stuck at less than 2 percent. According to the city, some 500 employees working past retirement age have accumulated more than $1 million in these accounts—on top of the pensions that they will receive once they officially stop working.

  • The Dallas Morning News says that there’s plenty of blame to go around:

    Over the years, the Dallas Police and Fire Pension System fund has amassed $2 billion to $5 billion in unfunded liabilities, the result of bad real estate investments and blatant self-enrichment from prior management. Coupled with a possible setback in ongoing litigation over public safety salaries, Dallas is in the most financially precarious position in its history.

    City officials are openly uttering the word bankruptcy, not just of the pension fund but the city itself. As Mayor Mike Rawlings told the Texas Pension Review Board this month, “the city is potentially walking into the fan blades that might look like bankruptcy.”

    The state Legislature created this mess by not giving the city a meaningful voice in the fund’s operation and allowing the former board of the pension fund to unilaterally sweeten its membership’s promised benefits without concern to the overall fiscal damage being done. Now it must help the city clean up the mess.

    Dallas already provides nearly 60 percent of its budget to support public safety services and recently contributed $4.6 million to increase its share of pension contributions to 28.5 percent — the maximum allowed under state statute. However, if Dallas loses the lawsuit over salaries and no changes are made to the pension fund, the city could take an $8 billion hit. That is roughly equal to eight years of the city’s general fund budget.

  • That said, the bond market doesn’t seem to think Dallas is near bankruptcy.
  • And it’s not just Dallas:

    Austin, Dallas, Houston and San Antonio collectively face $22.6 billion worth of pension fund shortfalls, according to a new report from credit rating and financial analysis firm Moody’s. That company analyzed the nation’s most debt-burdened local governments and ranked them based on how big the looming pension shortfalls are compared to the annual revenues on which each entity operates.

    “Rapid growth in unfunded pension liabilities over the past 10 years has transformed local governments’ balance sheet burdens to historically high levels,” the report says.

    Chicago had the most dire ratio on the national list. Dallas came in second. According to the report, the North Texas city has unfunded pension liabilities totaling $7.6 billion. That’s more than five times the size of the city’s 2015 operating revenues.

    Both those cities may turn to the public to partially shore up their shortfalls. Houston Mayor Sylvester Turner wants to use $1 billion in bonds to infuse that city’s funds. Dallas police officer and firefighter pension officials also want $1 billion from City Hall, an amount officials there say is too high.

    Meanwhile, Austin ranked 14th on the Moody’s list with unfunded pension liabilities of $2.7 billion. San Antonio ranked 22nd with a $2.3 billion shortfall.

  • Texas vs. California Update for September 14, 2016

    Wednesday, September 14th, 2016

    Time for another Texas vs. California update:

  • Vance Ginn makes the case that Texas is still kicking California’s ass:

    After descending into a deep valley during the recession, California’s economy has recently grown at a faster rate than in Texas, where the drop in oil prices and higher value of the dollar have negatively affected the mining and manufacturing sectors. However, during the last decade, the productive, real private sector growth has increased by 13.6 percent in California compared with a robust 29.1 percent in Texas.

    This growth translates into output per person in Texas increasing almost four times more than in California in that period, meaning economic output has far outpaced population growth.

    Although contemporary economic growth in California has led to a higher annual job creation rate than in Texas since April 2015, this only tells part of the story.

    Since December 2007 when the last national recession started, total civilian employment increased in California by 1.2 million while it increased by 1.7 million in Texas, with a labor force two-thirds the size of California’s. This increase in employment in Texas constitutes about one-third of all jobs created nationwide — truly remarkable given recent headwinds!

    This phenomenal job creation contributed to Texas’ unemployment rate (4.6 percent) being at or below California’s rate (5.5 percent) for 121 straight months, or since July 2006. But the official unemployment rate only accounts for those actually looking for work, a better gauge of labor force health would be the share of the population employed, which has been higher in Texas than in California since at least 2000.

    More economic output and job creation over time in Texas has contributed to less poverty. The Bureau of Labor Statistics’ supplemental poverty measure, which accounts for the local cost of living, shows that Texas’ rate matches the national average while California has the nation’s highest poverty rate

    Income inequality has also been higher in California than in Texas for years. For example, the average of total income held by the top 10 percent of income earners from 2000 to 2012 was 49.9 percent in California compared with 48.8 percent in Texas.

    The results are pretty clear that California’s progressive policies of having the highest marginal personal income tax rate, cumbersome regulations, huge unfunded pension obligations, an out of control lawsuit environment, and other policies reduce economic opportunity.

    (Hat tip: Pension Tsunami.)

  • High earners are leaving blue states like California for red states like Texas:

    For generations, the Golden State developed a reputation as the ultimate destination of choice for millions of Americans. No longer. Since 2000 the state has lost 1.75 million net domestic migrants, according to Census Bureau estimates. And even amid an economic recovery, the pattern of outmigration continued in 2014, with a loss of 57,900 people and an attraction ratio of 88.5, placing the Golden State 13th from the bottom, well behind longtime people exporters Ohio, Indiana, Kentucky and Louisiana. California was a net loser of domestic migrants in all age categories.

    Snip.

    Much of the discussion about millennial migration tends to focus on high-cost, dense urban regions such as those that dominate New York, Massachusetts and, of course, California. Yet the IRS data tells us a very different story about migrants aged 26 to 34. Here it’s Texas in the lead, and by a wide margin, followed by Oregon, Colorado, Washington, Nevada, North Dakota, South Carolina, Maine, Florida and New Hampshire. Once again New York and Illinois stand out as the biggest losers in this age category.

    Perhaps more important for the immediate future may be the migration of people at the peak of their careers, those aged 35 to 54. These are also the age cohorts most likely to be raising children. The top four are the same in both cohorts. Among the 35 to 44 age group, it’s Texas, followed by Florida, South Carolina and North Dakota. Among the 45 to 54 cohort, Texas, followed by South Carolina, Florida and North Dakota.

  • California just raised your food costs.
  • And agricultural producers are not happy:

    The Governor signed this ag overtime bill in the same year that minimum wage legislation was also passed that will take California to the highest minimum wage as well as legislation forcing California to adopt additional greenhouse gas regulations for businesses in California.

    California is the only state in the country subject to such regulations. Today’s signing occurred despite numerous requests by the agricultural industry to meet with the Governor to discuss our concerns. The message is clear. California simply doesn’t care.

  • Ca;ifornia companies have a hard time attracting workers:
  • More than two-thirds (70 percent) of organizations in California indicated that they have had difficulty recruiting for full-time regular positions in the last 12 months, similar to 68 percent nationally.
  • California organizations were more likely than organizations nationally to report competition from other employers (56 percent), qualified candidates rejecting compensation packages (28 percent), qualified candidates not being able to move to their local area (21 percent), or a relocation or a relocation package not being competitive or not being offered (12 percent) as top reasons for hiring difficulty.
  • Why California can’t build more housing. “Labor unions—which ostensibly stand for working class interests—will not stand for new construction unless it is accompanied by carve-outs and cronyist regulations that artificially boost their compensation.” (Hat tip: Instapundit.)
  • Stop me if you’ve heard this one before: “California’s unfunded pension debts may be larger than acknowledged.” (Hat tip: Pension Tsunami.)
  • “The biggest problem faced by the State of California is not ‘climate change’ or ‘poverty it is the overreaching power of California government itself, namely the California Legislature and Administration, and the threats that this Democrat establishment poses to California’s future, particularly with regard to the economy and individual liberty. California Democrats are celebrating the passage of new climate change legislation that provides California government with broad, sweeping new powers to drastically curb greenhouse gas reductions without regard to economic impact or the basic rights of businesses and individuals.” (Hat tip: Pension Tsunami.)
  • Palo Alto decides that they hate, hate, hate that golden goose.
  • Maybe that’s why some observers are telling people “If You Own A Home In Palo Alto, CA; Sell It Now.” As the median price of homes has actually started dropping, though from admittedly already insane heights…
  • “Case Study: How Politicians Motivate Companies to Leave California.”
  • Orange County clerk took bribes to make charges disappear.
  • Corrupt Oakland police sentenced. There are all sorts of real winners in this story…
  • LAX Police Assistant Chief Resigns Amid Corruption Allegations.”
  • University of California hires India-based IT outsourcer, lays off tech workers. “The layoffs will happen at the end of February, but before the final day arrives the IT employees expect to train foreign replacements from India-based IT services firm HCL. The firm is working under a university contract valued at $50 million over five years.” This might be a good time to throw in a “How’s that $15 minimum wage working out for you, San Francisco,” but there’s another factor at work: “Joe Bengfort, the CIO for the UCSF campus, said the campus is facing ‘difficult circumstances’ because of declining reimbursement and the impact of the Affordable Healthcare Act, which has increased the volume of patients but limits reimbursement to around 55 cents on the dollar, he said.” So San Franciscans IT workers are losing their jobs thanks to ObamaCare.
  • “Texas has proven it’s possible to have both much lower crime and a lower rate of imprisonment. Indeed, Texas’ FBI index crime rate, which accounts for both violent crime and property crime, has fallen more sharply than it has nationally, posting a 29 percent drop from 2005 to 2014, the latest full year for which official data is available.”
  • “It turns out that the average property tax bill required to support BART’s proposed $3.5 billion bond measure on the November ballot could be as much as four times what the transit agency claimed…That’s because legal language in Measure RR allows BART to issue bonds at up to the state limit of 12 percent interest.” 12%? With 30 year U.S. Treasuries running under 2%? The fact they think they may have to go that high to attract investors suggests how worried bond traders are about the future of California’s economy…
  • Some are less than enthused about BART’s bond proposal:

    BART officials want voters to trust them with another $3.5 billion of taxpayer money. But they’ve done nothing to earn that trust.

    Instead, they have recklessly spent what they have, grossly understated how much their ballot proposal would raise property tax bills and devised plans to use money from the measure, intended for capital projects, to indirectly cover inflated labor costs.

    Voters in Alameda County, Contra Costa and San Francisco should say no — hell no. They should reject Measure RR on the Nov. 8 ballot.

    Despite the problems facing the transit agency, it makes no sense to approve five decades of extra taxes when Measure RR lacks a logical budget, a timeline for service improvements and provisions ensuring taxpayers and riders get what they’re promised.

    The measure would authorize the district to borrow $3.5 billion through bond sales as part of a larger plan to upgrade BART’s infrastructure. The ballot wording conveniently omits that the district would tax property owners for 48 years to pay off the debt.

    (Hat tip: Pension Tsunami.)

  • Speaking of California bonds: Proposition 53 explained.
  • California’s legislature passes extension of sexual assault statue of limitations mainly over Bill Cosby. Combine this with the trend of colleges redefining rape to “any sex a woman later regrets,” and suddenly the state has the ability to prosecute anyone who ever had sex in California…
  • Leprosy Scare in California Elementary School. “There are approximately 6,500 cases of leprosy in the United States, and 90 percent of the cases are immigrants from countries where leprosy is endemic.With the increase in illegal immigrants and refugees in recent years, diseases thought to be eradicated in this country — like tuberculosis, polio, measles and leprosy — have unfortunately reemerged in the United States.” (Hat tip: Ed Driscoll at Instapundit.)
  • Image Comics to move from Berkeley to Portland.
  • Cow Fart Regulations Approved By California’s Legislature.” No, not an Onion piece.
  • Follow-up: Pacific Sunwear exits bankruptcy.
  • Texas vs. California Update for August 30, 2016

    Tuesday, August 30th, 2016
  • A new ranking of Freedom in the 50 states is out. Texas ranked 28th (too low, IMHO) while California ranked 49th:
    • Texas:

      Texas’s fiscal policy is very good. It is a fiscally decentralized state, with local taxes at about 4.5 percent of personal income, above the national average, and state taxes at about 3.6 percent of income, well below the national average. However, Texans don’t have much choice of local government, with only 0.36 jurisdictions per 100 square miles. State and local debt is above average (with the biggest problem being local debt burdens), at 23.1 percent of income, but it has come down slightly since FY 2011. Government subsidies are below average. Public employment has fallen significantly below average, at 11.8 percent of private employment.

      Texas’s land-use freedom keeps housing prices down. It also has a regulatory taking compensation law, but it only applies to state government. The renewable portfolio standard has not been raised in years. Texas is our top state for labor-market freedom. Workers’ compensation coverage is optional for employers; most employees are covered, but not all. The state has a right-to-work law, no minimum wage, and a federally consistent anti-discrimination law. Cable and telecommunications have been liberalized. However, health insurance mandates were quite high as of 2010, the last available date. The extent of occupational licensing is high, but the state recently enacted a sunrise review requirement for new licensure proposals. Time will tell whether it is at all effective. Nurse practitioners enjoy no freedom of independent practice at all. Texas has few cronyist entry and price regulations, but it does have a price-gouging law, and Tesla’s direct sales model is still illegal. The civil liability system used to be terrible, but now it is merely below average. The state abolished joint and several liability in 2003, but it could do more to cap punitive damages and end parties’ role in judicial elections.

    • California:

      Although it has long been significantly freer on personal issues than the national average, California has also long been one of the lowest-scoring states on economic freedom.

      Despite Proposition 13, California is one of the highest-taxed states in the country. Excluding severance and motor fuel taxes, California’s combined state and local tax collections were 10.8 percent of personal income. Moreover, because of the infamous Serrano decision on school funding, California is a fiscally centralized state. Local taxes are about average nationally, while state taxes are well above average. Government debt is high, at 22.8 percent of personal income. The state subsidizes business at a high rate (0.16 percent of the state economy). However, government employment is lower than the national average.

      Regulatory policy is even more of a problem for the state than fiscal policy. California is one of the worst states on land-use freedom. Some cities have rent control, new housing supply is tightly restricted in the coastal areas, and eminent domain reform has been nugatory. Labor law is anti-employment, with no right-to-work law, high minimum wages, strict workers’ comp mandates, mandated short-term disability insurance, and a stricter-than-federal anti-discrimination law. Occupational licensing is extensive and strict, especially in construction trades. It is tied for worst in nursing practice freedom. The state’s mandatory cancer labeling law (Proposition 65) has significant economic costs. It is one of the worst states for consumer freedom of choice in homeowner’s and automobile insurance.

    (Hat tip: Pension Tsunami.)

  • Texas tops yet another list as the best place to work and live.
  • “This notion of California as a land of outsiders is being turned on its head, our state’s dream repackaged – often with the approval of its ruling hegemons – as something more like a medieval city, expelling the poor and the young, while keeping the state’s blessings to the well-educated, well-heeled and generally older population”:

    California has been bleeding people to other states for more than two decades. Even after the state’s “comeback,” net domestic out-migration since 2010 has exceeded 250,000. Moreover, the latest Internal Revenue Service migration data, for 2013-2014, does not support the view that those who leave are so dominated by the flight of younger and poorer people.

    Of course, younger people tend to move more than older people, and people seeking better job opportunities are more likely to move than those who have made it. But, according to the IRS, nearly 60,000 more Californians left the state than moved in between 2013 and 2014. In each of the seven income categories and each of the five age categories, the IRS found that California lost net domestic migrants.

    Nor, viewed over the long term, is California getting smarter than its rivals. Since 2000, California’s cache of 25- to 34-year-olds with college, postgraduate and professional degrees grew by 36 percent, below the national average of 42 percent, and Texas’ 47 percent. If we look at metropolitan regions, the growth of 25- to 34-year-olds with college degrees since 2000 has been more than 1.5 to nearly 3 times as fast in Houston and Austin as in Silicon Valley, Los Angeles, or San Francisco. Even New York, with its high costs, is doing better.

    (Hat tip: Instapundit, who also notes “I remember talking to the Investor’s Business Daily folks a few years ago — they were headquartered in Marina Del Rey, a lovely place but one where they were constantly visited by inspectors, tax people, etc., all posing problems. When they opened an office in Texas, the state and local government people were all ‘tell us if we can help you.’ Very different experience.”)

  • “IRS Data: More Americans are relocating to Texas.” Though why an article datelined El Paso, and quoting only El Paso experts, uses a photo of Austin’s skyline to illustrate the story is a mystery…
  • The California Teacher’s Association: the worst union in America:

    Seen as a national leader in the classroom during the 1950s and 1960s, the country’s largest state is today a laggard, competing with the likes of Mississippi and Washington, D.C., at the bottom of national rankings. The Golden State’s education tailspin has been blamed on everything from class sizes to the property-tax restrictions enforced by Proposition 13 to an influx of Spanish-speaking students. But no portrait of the system’s downfall would be complete without a depiction of the CTA, a political behemoth that blocks meaningful education reform, protects failing and even criminal educators, and inflates teacher pay and benefits to unsustainable levels.

    Also this:

    According to figures from the California Fair Political Practices Commission (a public institution) in 2010, the CTA had spent more than $210 million over the previous decade on political campaigning—more than any other donor in the state. In fact, the CTA outspent the pharmaceutical industry, the oil industry, and the tobacco industry combined.

  • California state appeals court rules unanimously that, yes, public employee pension benefits can indeed be reduced. (Hat tip: Pension Tsunami.)
  • The court giveth, the court taketh away, as the Vergara lawsuit ends with a whimper, meaning teachers unions can screw poor kids in California for the immediate future.
  • Meanwhile, California’s Democrat-controlled legislature passes a bill to get their fingers on private retirement funds create a plan to create a pension for private employee who don’t have one. (Hat tip: Pension Tsunami.)
  • No, it’s just to create more opportunities for graft through taxation. (Hat tip: Pension Tsunami.)
  • California’s cap-and-trade program is a colossal failure, and it may take the high speed rail boondoggle down with it:

    California concluded its most recent cap-and-trade program auction last week. Out of 44,268,323 metric tons of carbon dioxide credits offered for sale by the state Air Resources Board, only 660,560 were sold, 1.5 percent of the total, raising a paltry $8.4 million out of a hoped-for $620 million. Last May’s auction was almost as bad, raising $10 million out of an anticipated $500 million.

    California’s carbon dioxide cap-and-trade auction program was expected to bring in more than $2 billion in the current fiscal year that ends June 30, 2017, a quarter of which is earmarked for the high-speed rail project narrowly approved by voters in a 2008 ballot initiative. As a hedge against uncertainty, a $500 million reserve was built into the cap-and-trade budget. But, with the August auction falling 98.5 percent short, the entire reserve was consumed in the first of four auctions for the fiscal year.

    It gets better:

    In the meantime, the High-Speed Rail project, currently promised to cost “only” $68 billion to run from the Bay Area some 400 miles south to Los Angeles may be looking at $50 billion in overruns. To fund the costly train, which was sold to voters as not costing a dime in new taxes, the expected revenue stream from cap-and-trade has been securitized, putting the state on the hook to Wall Street for billions in construction money advanced on the promise of future cap-and-trade revenue.

  • California spends $1.5 billion for Chinook salmon.
  • The corrupt city of Maywood, California hired an engineering firm whose employees were so hard-working they put in 27 hour days.
  • The collapse of high-end California wine merchant Premier Cru, a $45 million wine Ponzi scheme.
  • Three skilled nursing facilities in Humboldt County, California to close because they can’t find enough nurses. Humboldt County is up on the Northern California coast.
  • The Inland Empire in Southern California, still reeling from its foreclosure crisis, saw the biggest jump in income inequality in the state at more than 40 percent. (Hat tip: Instapundit.)
  • Toastmasters International to move from Orange County, California to Colorado.
  • And least you think Texas is complete immune from pension worries, the Employees Retirement System of Texas is set to run out of money as well…in 2063. (Hat tip: Pension Tsunami.)
  • If California farmland overvalued?
  • California judge faces recall over being being too lenient to a sex offender. If the recall succeeds, liberals may very well regret setting this precedent…
  • California Governor Jerry Brown may push “green” initiatives, but he’s more than happy to take money for doing regulatory favors for Chevron and Occidental Petroleum. (Hat tip: Director Blue.)
  • From 2010: California’s abandoned wind farms.
  • Dallas Pension Fund Near Insolvenacy Thanks To Risky Investments

    Wednesday, August 24th, 2016

    Dallas Police and Fire pension fund are near insolvency thanks to shady real estate deals:

    The Dallas Police & Fire Pension (DPFP), which covers nearly 10,000 police and firefighters, is on the verge of collapse as its board and the City of Dallas struggle to pitch benefit cuts to save the plan from complete failure. According the the National Real Estate Investor, DPFP was once applauded for it’s “diverse investment portfolio” but turns out it may have all been a fraud as the pension’s former real estate investment manager, CDK Realy Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%. Guess it’s pretty easy to generate good returns if you manage a book of illiquid assets that can be marked at your “discretion”.

    To provide a little background, per the Dallas Morning News, Richard Tettamant served as the DPFP’s administrator for a couple of decades right up until he was forced out in June 2014. Starting in 2005, Tettamant oversaw a plan to “diversify” the pension into “hard assets” and away from the “risky” stock market…because there’s no risk if you don’t have to mark your book every day. By the time the “diversification” was complete, Tettamant had invested half of the DPFP’s assets in, effectively, the housing bubble. Investments included a $200mm luxury apartment building in Dallas, luxury Hawaiian homes, a tract of undeveloped land in the Arizona desert, Uruguayan timber, the American Idol production company and a resort in Napa.

    Despite huge exposure to bubbly 2005/2006 vintage real estate investments, DPFP assets “performed” remarkably well throughout the “great recession.” But as it turns out, Tettamant’s “performance” was only as good as the illiquidity of his investments. We guess returns are easier to come by when you invest your whole book in illiquid, private assets and have “discretion” over how they’re valued.

    In 2015, after Tettamant’s ouster, $600mm of DPFP real estate assets were transferred to new managers away from the fund’s prior real estate manager, CDK Realty Advisors. Turns out the new managers were not “comfortable” with CDK’s asset valuations and the mark downs started. According to the Dallas Morning News, one such questionable real estate investment involved a piece of undeveloped land in the Arizona desert near Tucson which was purchased for $27mm in 2006 and subsequently sold in 2014 for $7.5mm.

    It gets better: “Then the plot thickened when, in April 2016, according the Dallas Morning News, FBI raided the offices of the pension’s former investment manager, CDK Realty Advisors.”

    Also: “And of course the typical pension ponzi, whereby in order to stay afloat the plan is paying out $2.11 for every $1.00 it collects from members and the City of Dallas effectively borrowing from assets reserved to cover future liabilities (which are likely impaired) to cover current claims in full.”

    Want to guess which political party Richard Tettamant was affiliated with?

    Go ahead. Guess.

    Tettament Donations

    (Hat tip: Jack Dean of Pension Tsunami.)

    Texas vs. California Update for August 10, 2016

    Wednesday, August 10th, 2016

    Time for another Texas vs. California roundup:

  • How California screwed itself:

    Then-Gov. Gray Davis and the Legislature had quietly, virtually without notice, decreed a massive, retroactive increase in state employee pension benefits, which was quickly emulated by hundreds of local governments.

    At the time, CalPERS was ringing up big earnings from the 1990s’ bullish stock market — so big that it had reduced contributions from member governments to near zero. Public employee unions hankered for a share of the bounty and pressed for a benefit increase.

    The CalPERS board, dominated by public employees and union-friendly politicians, sponsored the increase, Senate Bill 400, with assurances that it would cost taxpayers nothing. A state Senate analysis of the bill said CalPERS “believes they will be able to mitigate this cost increase through continued excess returns of the CalPERS trust.”

    Years later, it emerged that the assurances reflected the most optimistic of several scenarios developed by the CalPERS staff. More pessimistic scenarios were kept secret — but they were the ones that came true. By the time Seeling delivered his dark appraisal in 2009, the state was being hammered by an ultra-severe recession, and the CalPERS trust fund was losing what turned out to be nearly $100 billion in value.

    Seven years later, CalPERS and other pension funds still haven’t fully recovered, and they’re sharply raising mandatory “contributions” from state and local governments to cover the gaps left by meager investment earnings.

    (Hat tip: Pension Tsunami.)

  • California is deluding itself if it thinks it’s “turned to corner” and is on the path for sustainable growth:

    Between 2000 and 2015, Austin has increased its jobs by 50 percent, while Raleigh, Houston, San Antonio, Dallas, Nashville, Orlando, Charlotte, Phoenix and Salt Lake City – all in lower-tax, regulation-light states – have seen job growth of 24 percent or above. In contrast, since 2000, Los Angeles and San Francisco expanded jobs by barely 10 percent. San Jose, the home of Silicon Valley, has seen only a 6 percent expansion over that period.

    Obviously this runs counter to the notion of California being business friendly, since the ratio of jobs to workers is lower here than in Texas and the rest of the United States, and sometimes a lot lower.

    Snip.

    Gov. Brown has achieved bragging rights by suggestions of a vaunted return to fiscal health. True, California’s short-term budgetary issues have been somewhat relieved, largely due to soaring capital gains from the tech and high-end real estate booms. But the state inevitably will face a soaring deficit as those booms slow down. Brown is already forecasting budget deficits as high as $4 billion by the time he leaves office in 2019. As a recent Mercatus Center study notes, California is among the states most deeply dependent on debt.

    The state’s current budget surplus is entirely due to a temporary tax and booming asset markets. The top 1 percent of earners generates almost half of California’s income tax revenue, and accounts for 41 percent of the state’s general fund budget. These affluent people have incomes that are much more closely correlated to asset prices than economic activity, and asset prices are more volatile than economic activity generally. Brown’s own Department of Finance predicts that a recession of “average magnitude” would cut revenue by $55 billion.

    More critically, the state continues to increase spending, particularly on pensions. Outlays have grown dramatically since the 2011-2012 fiscal year, averaging 7.8 percent growth per year through FY 2015-2016. Seeing the writing on the wall, the state’s labor leaders now want to extend the “temporary” income tax, imposed in 2012, until 2030. This might not do much to spark growth, particularly in a weaker economy.

    During this recovery, California has made minimal effort to eliminate the state’s budget fragility. To use a recently popular term, this is gross negligence. It is, thus, no surprise that credit ratings agency Moody’s Investors Service ranked California second from the bottom in being able to withstand the next recession. Someday the bills will come due.

  • More on California’s business climate vs. Texas:

    Note that across the entire decade the unemployment rate in California was consistently greater than that in the United States, averaging 1.5 percentage points greater overall and maxing out at 2.9 percentage points in January and February of 2011. Except for the first six months of 2006, the same story holds true for California and Texas, although the differences here are more pronounced: an average of 2.5 percentage points greater and a maximum difference of 4.2 percentage points at various points in 2009 and 2010. Also note how long double-digit unemployment persisted in California (43 months) during this decade compared to the United States (1 month) and Texas (0 months).

    Also: “Texas outperformed California in 9 of the 10 years. And Texas had a CAGR of 3.1 percent, meaning its economy grew at more than twice the pace of California’s each year.” (Hat tip: Pension Tsunami.)

  • Texas’ economic, labor Market, and fiscal situation. “The Texas model leads comparable states and U.S> averages in most measures.”
  • “CalPERS has not met its expected 7.5% rate of return for the last 20 years.” (Hat tip: Ace of Spades HQ.)
  • Things in Texas are very different than they were in the 1980s:

    This is what Krugman and others really get wrong about the Texas miracle.

    The state had its last major recession from 1986 to 1987, after oil prices collapsed and the real estate and financial sectors crashed. Back then, the mining sector, dominated by oil and gas activity, was directly related to about 21 percent of the real private economy and roughly 5 percent of the labor force. Today, mining is 15 percent of the real private economy and less than half of the labor force share. As a result, the combination of more economic diversification and pro-growth policies has produced a much more resilient economy. Texas in 2016 looks a lot different than Texas in 1987.

  • “A major impediment to economic growth and a factor chasing people and businesses away from California is the state’s high tax rates and poorly structured tax code. California levies the highest top marginal income tax rate in the nation at 13.3% and has the country’s 6th highest overall tax burden. Such a hostile tax climate has consequences. During the last decade, from 2000 to 2010, California had a net outmigration of over 1.2 million residents move to other states. Those former Californians took over $29 billion in income with them.”

    Residents of San Diego, Newport Beach, Los Angeles, San Francisco, and many other cities and towns across California enjoy beautiful scenery and enviably pleasant weather year round; while folks in Dallas, San Antonio, Austin, and Houston ride out their hot and humid summers by staying indoors as much as possible. Yet Texas has been the number one recipient of California refugees. While the physical climates found in states that are the top recipients of California refugees don’t hold a candle to the Golden State’s, the business tax climates are far more hospitable.

    California imposes the nation’s highest income tax, while Texas is one of nine states with no income tax. While Texas has the 10th best business tax climate in the nation, according to the non-partisan Tax Foundation, California has the country’s third worst. During the last decade, over 225,000 people moved from California to Texas, bringing over $4.4 billion in income with them to the Lone Star State. After Texas, Nevada is the number two recipient of ex-Californians. Like Texas, Nevada can’t compete with California’s natural beauty and climate, but the Silver State makes up for it by having no state income tax and the nation’s 5th best business tax climate.

    (Hat tip: Pension Tsunami.)

  • The deregulated energy market is still working to lower costs for Texans.
  • California’s Democrat-dominated local governments are riddled with nepotism in their hiring practices. In San Diego, “Investigators uncovered an employee vetting process they allege was ‘abused’ — so that in a third of the cases reviewed, ‘friends and family members’ of city staff were hired ‘to the detriment of public job applicants.’” (Hat tip: Pension Tsunami.)
  • Liberal complains about how San Francisco’s progressive policies killed affordable housing. “Instead of forming a pro-growth coalition with business and labor, most of the San Francisco Left made an enduring alliance with home-owning NIMBYs. It became one of the peculiar features of San Francisco that exclusionary housing politics got labeled “progressive.” Do note this piece is from a year ago. (Hat tip: Instapundit.)
  • Speaking of San Francisco, three of the city’s supervisors have decided that he would like to take the goose that laid the golden egg (i.e., the city’s high tech employers), smother it with locally source rosemary, thyme and organic butter, and broil it at 450° in the form of a payroll tax for those companies that earn $1 million or more in gross receipts.
  • “In 2014 there were 142,417 housing starts in the city of Tokyo (population 13.3m, no empty land), more than the 83,657 housing permits issued in the state of California (population 38.7m).” (Hat tip: Instapundit.)
  • “California To Proclaim August “Muslim Appreciation And Awareness Month.” So when do we get Christian Appreciation Month?
  • “Relocation of Highway 99 in Fresno, a key part of the bullet train project, is over budget, behind schedule and will cost millions of dollars more to complete.” (Hat tip: Cal Watchdog.)
  • DAE Systems is relocating its headquarters to Catawba County and intends to create 46 new jobs and invest $6.8 million during the next three years, Gov. Pat McCrory’s office announced Monday. The California-based company, which is moving to Claremont, will receive a grant of up to $110,000 from the One North Carolina Fund that is dependent on the company meeting job-creation goals.”
  • Nothing says “adult oversight” quite like playing strip poker with teenage camp counselors. Take a bow, Stockton Mayor Anthony Silva! (Hat tip: Dwight, who also notes that Silva is a member of the criminal-ridden “Mayors Against illegal Guns.”)
  • Noted for the record: Mayor Silva comes up twice at the very top of Stockton real estate developer Dan Cort’s Facebook page. (Previously.)
  • Texas vs. California Update for July 25, 2016

    Monday, July 25th, 2016

    Enjoy another Texas vs. California roundup:

  • June marked the 114th month that Texas was at or below the national unemployment average. Texas also created 246,600 jobs in the service sector.
  • Once again Texas ranks as the best state for business, and California ranks worst. (Hat tip: Fox and Hounds via Pension Tsunami.)
  • Elites watch while California crumbles:

    The basket of California state taxes — sales, income, and gasoline — rates among the highest in the U.S. Yet California roads and K-12 education rank near the bottom.

    California depends on a tiny elite class for about half of its income-tax revenue. Yet many of these wealthy taxpayers are fleeing the 40-million-person state, angry over paying 12 percent of their income for lousy public services.

    Excessive state regulations and expanding government, massive illegal immigration from impoverished nations, and the rise of unimaginable wealth in the tech industry and coastal retirement communities created two antithetical Californias.

    One is an elite, out-of-touch caste along the fashionable Pacific Ocean corridor that runs the state and has the money to escape the real-life consequences of its own unworkable agendas.

    The other is a huge underclass in central, rural, and foothill California that cannot flee to the coast and suffers the bulk of the fallout from Byzantine state regulations, poor schools, and the failure to assimilate recent immigrants from some of the poorest areas in the world.

    The result is Connecticut and Alabama combined in one state. A house in Menlo Park may sell for more than $1,000 a square foot. In Madera, three hours away, the cost is about one-tenth of that.

  • CalPERS suffers $30.8 billion annual loss. “CalPERS has notoriously minimized the annual pension contribution for its 3,007 government entities by fantasizing that its superior investments expertise will allow its investments to compound every year without loss for the next three decades at an annual rate of 7.5 percent.” (Hat tip: Pension Tsunami.)
  • CalSTRS isn’t doing much better: “The California State Teachers’ Retirement System [earned] 1.4% for the fiscal year ended June 30.” (Hat tip: Instapundit.)
  • Record tax revenues, yet somehow California is still broke:

    California taxpayers are getting taken to the cleaners, but most of them are completely in the dark about how and why.

    I will pose a quick question: Does it seem strange that California has recorded record revenue increases, yet we also see a record number of tax increases and bond issuances on the ballot?

    In other words, the state’s tax system is collecting massive amounts of revenues, record amounts, yet politicians are still asking for a record number of new tax increases. For taxpayer advocates, it just doesn’t seem fair and seems very strange at first glance as to how this can even occur.

    The truth of the matter is that California’s system of public finance is a complete train wreck and is set up such that no amount of tax revenues collected will ever be enough to satisfy “spending needs.” The so-called baseline expenditure increases are on autopilot and deficit projections are generated despite record revenue increases, a trend projected in the Governor’s May Revise.

    (Hat tip: Pension Tsunami.)

  • “As we roll toward the November ballot, I’m reminded of H.L. Mencken’s quip that “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” We always get it “good and hard” in California given the ever-expanding one-party rule. The worse it gets, the more voters from the GOP high-tail it to Nevada and Texas — and the worse it gets as political competition evaporates. It’s the political equivalent of a death spiral.” (Hat tip: Pension Tsunami.)
  • Lots of tax hikes are on the California ballot this November, for a variety of different ostensible reasons, but actually for a single reason: Pensions. (Hat tip: Pension Tsunami.)
  • Beaumont, California: “Seven former officials were arrested and charged with stealing nearly $43 million during the city’s development boom. Now, residents are learning that the town’s problems go much deeper than the criminal case.” (Hat tip: Gregory Benford’s Facebook page.)
  • “California’s high-speed rail project increasingly looks like an expensive social science experiment to test just how long interest groups can keep money flowing to a doomed endeavor before elected officials finally decide to cancel it.” $68 billion and rising. (Hat tip: Ace of Spades HQ.)
  • Teachers union writes a $10-million check for income tax ballot measure.”
  • “Oakland police officer Malcolm Miller more than quadrupled his $107,627 salary to $489,662 with overtime, benefits and other specialty pays last year — making him Oakland’s highest paid employee for the third year in a row.” (Hat tip: Pension Tsunami.)
  • “C.C. Myers Inc., one of California’s highest-profile freeway builders, has filed for bankruptcy.”
  • Also filing for bankruptcy: California-based developer Criswell-Radovan, which owns the Tahoe Cal Neva casino Frank Sinatra used to own.
  • One tiny bit of dubious good news for the Bankruptcy Court for the Central District of California: Now they’re only the second in bankruptcy filings in the nation at 45,000, having been overtaken by the Bankruptcy Court for the Northern District of Illinois at 47,535 filings.
  • Nissan and Toyota battle over Texas. “Both automakers are zeroing in on Texas as a key growth opportunity.”
  • California’s Democratic State Controller Betty Yee fined $2,082 for violations during her 2014 campaign.
  • Rent a security robot for $7 an hour. How many human security guards will be left at California’s $15 an hour?
  • Old and Busted: Participation trophies. The New Hotness: California’s Democratic officials giving awards to their own family members.
  • “Judge throws out ex-L.A. County Sheriff Lee Baca’s plea deal, saying six months in prison not enough.” (Hat tip: Dwight.)
  • Texas vs. California Update for May 10, 2016

    Tuesday, May 10th, 2016

    Time for another Texas vs. California update:

  • In a fiscal test of which states are best prepared for the next recession, Texas ranked best and California ranked worst. (Hat tip: Jack Dean of Pension Tsunami.)
  • And California didn’t just flunk the test, it flunked it badly. (Ditto)
  • A big reason is the top-heavy nature of income tax receipts. “Nearly half of the state’s personal income tax revenue comes from the top 1 percent of earners — 150,000 individual tax returns. And personal income tax revenue is 65 percent of total revenue, which means the One Percent provides 33 percent of the state’s total revenue.”
  • Here’s a handy comparison of Texas vs. California debt ratios using a number of different metrics. You can also look at several different metrics with the general pension tracker tool, put together by the Stanford Institute for Economic Policy Research. (Hat tip: Pension Tsunami.)
  • The same source tells us that California has the third highest market/pension debt ratio in the country, while Texas ranks 34th.
  • “During the Great Recession and since, Texas has been America’s jobs engine, creating 34 percent of all U.S. civilian jobs during the last eight years in a state with less than 10 percent of the nation’s population.”
  • Moody’s downgrades bond ratings for the Pasadena Unified School District right when the district passes a 6% salary increase.
  • Reno is increasingly benefiting from companies relocating from California.
  • Texas company wants to store California’s nuclear waste.
  • “In 2014, a study by the conservative American Enterprise Institute found that full-career state workers in five states — California, New Mexico, Oregon, Texas and West Virginia — earned more in retirement income than in their final salary.” I’m pretty sure Texas salaries on average were significantly lower than California’s, and that there were less of them…
  • Court strikes down California Attorney General Kamala Harris’s unconstitutional attempt to compel conservative nonprofits to reveal their donors. (Hat tip: Ace of Spades HQ. )
  • Bay area law enforcement offices have “lost” over 500 guns since 2010.
  • The headquarters for Jamba Juice is relocating from Emeryville, California to Frisco, Texas. (Hat tip: Jack Dean of Pension Tsunami.)
  • The U.S. headquarters for Mitsubishi Heavy Industries relocated from New York to Houston.