Downsize Your Ambitions!

Not to put too much of a damper on the holiday spirit especially when retail sales appear to have been OK, but this piece in the Wall Street Journal over the weekend caught my eye.  It is titled "As Slump Hits Home, Cities Downsize Their Ambitions".  It starts with a vignette from Arizona:

MESA, Ariz. -- The police department in this city of 470,000 has lost about 50 officers, and is hiring lower-paid civilians to do investigative work. The Little League has to pay the city $15 an hour to turn on ball-field lights. The library now closes its main location on Sundays, and city offices are open only four days a week. This holiday season, the city didn't put up festive lights along the downtown streets.

And goes on to note that "months after economists declared the recession over, cities are only now beginning to feel the full brunt of it".  The position being advanced says that property and sales tax slumps follow the general decline (and recovery).

The Voice will take a look at the early indicators of how B'game's finances will look in 2010 as soon as we get the next update, but one can guess that it won't be all peaches and cream for '10.

Comments

[Ron Fulderon]

Well, "duh".

If anyone is reading this forum and noting that I have a rather pessimistic attitude about the future of our city's finances and wonder why, here is a link to a blog that I read a lot.

http://kunstler.com/blog/2009/12/forecast-2010.html

warning: the title of the blog may be offensive to some and some of the comments I find offensive, but the author of the essays on the blog, James Howard Kunstler, is quite a clever writer.

[sjm]

Thanks for the reference to Mr. Kunstler. His Wikipedia entry says, among other things, that:

Described as a Jeremiah by The Washington Post, Kunstler is critic of suburbia and urban development trends throughout the United States, and is a proponent of the New Urbanism movement. According to Scott Carlson, reporter for The Chronicle of Higher Education, Kunstler's books on the subject have become "standard reading in architecture and urban planning courses".[3]

Since the mid-90s, he has written four non-fiction books about suburban development and diminishing global oil supplies. According to the Columbia Journalism Review, his first work on the subject, The Geography of Nowhere, discussed the effects of "cartoon architecture, junked cities, and a ravaged countryside", as he put it. [4] He describes America as a poorly planned and "tragic landscape of highway strips, parking lots, housing tracts, mega-malls, junked cities, and ravaged countryside that makes up the everyday environment where most Americans live and work."

While I enjoyed reading the item Ron pointed us to, the whole "peak oil" argument is subject to quite a bit of dispute from knowledgeable people. Kunstler is a little light on the economics of the issue mainly because he is a little light on economics generally. His formal education is in theatre--and that is hard to recover from. Anyway you look at it, the problems Burlingame is facing don't have a lot to do with Kunstler's philosophies, but I will grant you that the state of CA problems are possibly related.

[Rich]

An interesting article about CA's dire fiscal situation and a comparison of what we get for our tax dollars vs. other states:

http://www.city-journal.org/2009/19_4_california.html

[Joe]

Here is an article about a local coalition's proposed legislation to stop the raids on cities' coffers by the state http://www.smdailyjournal.com/article_preview.php?id=122729

They are pushing for a consitutional amendment to that effect.

[Account Deleted]

"Burlingame proposed cuts include shuttering fire station, library":
http://www.insidebayarea.com/ci_14451626?source=most_viewed

[BoogeyMan]

Now we'll pay taxes for fewer folks doing less work in order to support the pensions of the retired.

In addition to lay-offs, furloughs and firings, the city had better not over-commit to pensions in the future.

[Account Deleted]

From Willie Brown (column in San Francisco Chronicle, 1/3/10)

If we as a state want to make a New Year's resolution, I suggest taking a good look at the California we have created. From our out-of-sync tax system to our out-of-control civil service, it's time for politicians to begin an honest dialogue about what we've become.

Take the civil service.

The system was set up so politicians like me couldn't come in and fire the people (relatives) hired by the guy they beat and replace them with their own friends and relatives.

Over the years, however, the civil service system has changed from one that protects jobs to one that runs the show.

The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life.

But we politicians, pushed by our friends in labor, gradually expanded pay and benefits to private-sector levels while keeping the job protections and layering on incredibly generous retirement packages that pay ex-workers almost as much as current workers.

Talking about this is politically unpopular and potentially even career suicide for most officeholders. But at some point, someone is going to have to get honest about the fact that 80 percent of the state, county and city budget deficits are due to employee costs.

Either we do something about it at the ballot box, or a judge will do something about in Bankruptcy Court. And if you think I'm kidding, just look at Vallejo.

Read more: http://www.sfchron.com/cgi-bin/article.cgi?f=/c/a/2010/01/03/BA2V1BBGHH.DTL#ixzz0gTtQHEa6

[Joe]

And from today's Sacramento Bee at http://www.sacbee.com/2010/02/24/2560206/schwarzenegger-whitman-back-away.html

Despite their full-throated support for cutting public employee pension costs, Gov. Arnold Schwarzenegger and the leading GOP candidate to replace him, Meg Whitman, have backed away from supporting a ballot measure that would do just that.

Their decisions, part of the complex calculus of California politics, are the death knell for the initiative drafted the California Foundation for Fiscal Responsibility. The Citrus Heights-based group had courted both the governor and the former eBay CEO.

"The governor felt he'd be a hindrance to us," said Marcia Fritz, president of the Citrus Heights-based foundation. "Meg is not supporting us. That's pretty much it."

The pension measure would have inflamed labor, he said, and helped them organize for the election, "but it's not going to inflame most voters. People don't get out of bed in the morning and say, 'My God, we've got to sock it to the cops.' "

The foundation's measure aimed to reduce benefits for state, local, county and regional government workers hired after July 1, 2011. For example, peace officers and firefighters now can retire at 3 percent of their annual pay multiplied by their years of service at age 50. The initiative would have cut that to 2.3 percent at age 58 for new hires.

Fritz estimated the new arrangement would have saved the state a total $14 billion over its first six years.

[Account Deleted]

We're still not ultimately beholden to the state of California - Indeed, this is one of the Council's 2010-11 stated priorities (wish it was higher than #11):

"11. Encourage establishment of a two tier retirement system. (CM and Human Resources)"

[Ron Fulderon]

The system is so grossly out of whack that 2.3 percent at 58 is supposed to sound like a big sacrifice they are making. That 2.3 percent works out to be quite a sizable retirement, far higher than anything someone of similar skills and education would be making in the private sector. It is still unfair to the taxpayer. Those grossly wrong retirement packages were granted to them by corrupt and stupid political leadership to buy their votes at our expense.

On top of that going to this two tier solution might have some hope of fixing the system 30 years from now, but the system is badly broken and won't survive that long. The only solution is to declare bankruptcy and renegotiate these contracts. Ultimately that IS what's going to happen.

[Account Deleted]

Calpers Confronts Cuts to Return Rate
Trimming 7.75% Could Add to California's Woes; BlackRock to Board—'You'll Be Lucky to Get 6%'

By GINA CHON
Calpers is considering whether to reduce the projected rate of return used by the giant pension fund to make investment decisions. A cut could force cash-strapped governments in California to pay millions more each year to cover their employee pension obligations.
Since 2003, the California Public Employees' Retirement System has assumed that the value of its stocks, bonds and other holdings would increase by 7.75% a year. But the likelihood of an extended period of modest economic growth world-wide is fueling doubts inside Calpers that the pension fund can continue aiming so high.
No specific alternate targets have been discussed by Calpers officials, but the board has been encouraged to shrink its projected rate of return to as low as 6%.
"It's bruising...but it has to be done," said David Crane, a pension adviser to California Gov. Arnold Schwarzenegger. Facing a projected budget deficit of nearly $20 billion, the Republican favors a lower target at Calpers, according to Mr. Crane. Calpers manages about $200 billion, making it the U.S.'s largest public pension fund.
The percentage is an important factor in calculations by Calpers officials of future contributions needed from employees and local governments to cover payouts promised to retirees and other beneficiaries. If the return assumption declines, contributors likely would have to make up the difference.
Paying more into Calpers could deepen the financial misery facing many California governments. Some likely would increase taxes or cut services.
For the pension fund, lower investment-return expectations could reduce the temptation to seek outsize profits through real-estate, private-equity and other nontraditional investments that wound up burning Calpers with big losses.
In its fiscal year ended June 30, Calpers was down 23%, or $58 billion, the worst performance in the pension fund's 78-year history. It was up 12% for the year ended Dec. 31. Calpers's annualized return over the past 20 fiscal years is slightly higher than the 7.75% target.
At a meeting of the pension fund's investment committee last month, some Calpers board members pressed to review whether the current 7.75% projected rate of return still is realistic.
"We intend to open that question," responded Joseph Dear, the pension fund's chief investment officer, according to a transcript of the meeting. "Should we be considering other possible outcomes?"
Patricia Macht, a Calpers spokeswoman, said Mr. Dear still feels comfortable that 7.75% "could be the right number, but he's not making that prediction." The pension fund wants to hear varying opinions so that it has the information it needs to make a decision, she added.
The decision isn't expected until early 2011. Calpers officials also are examining the pension fund's asset allocation, risk management and other areas as part of a routine review done every three years.
Pressure to lower the target has been building for months. "You'll be lucky to get 6% on your portfolios, maybe 5%," BlackRock Inc. Chairman and Chief Executive Laurence Fink told Calpers board members last July.
Calpers is a client of the New York company. Mr. Fink declined to comment Friday.
Calpers last reduced its rate-of-return assumption in 2003 amid economic turbulence. The previous target was 8.25%.
The most common projected rate of return among public pensions in the U.S. is 8%, according to Pew Center on the States, a research unit of Pew Charitable Trusts. But that figure looks daunting following double-digit percentage losses at many pension funds amid the financial crisis.
Even though many pension funds topped their assumed returns over the long term, "whether or not that should be the rate going forward is another question," says Kil Huh, Pew research director.
William Atwood, executive director of the Illinois State Board of Investment, says he is comfortable with the pension fund's assumed 8.5%-a-year return, noting that Illinois has earned about 8.6% a year since 1970.
Still, public pension systems are watching Calpers closely because "they are the big kid on the block," Mr. Atwood says. The Illinois investment board manages three pension funds with $8.7 billion in assets.
At Calpers, about 75% of payouts come from the pension fund's investments, with the remaining 25% tied to contributions from California governments and employees.
According to Pew, a hypothetical $100 billion pension fund that achieved a 7.75% return rate for 10 years would have about $211 billion. With a 6% rate, the same fund would grow to $179 billion—a difference of $32 billion.
Mr. Schwarzenegger has proposed as part of the budget being debated in Sacramento that state employees contribute an additional 5% for their retirement costs. While forcing outsiders to pump more into Calpers would be painful, there is no alternative given the huge liabilities facing the pension fund, said Mr. Crane, the governor's pension adviser.
Mr. Schwarzenegger had proposed that the state's contribution to Calpers increase to at least $4.5 billion in the next fiscal year. The pension fund, which can change the employer-contribution rate without legislative approval, agreed to a $3.5 billion payment. That would defer some of the cash payments needed to make up for investment losses and reduce the impact on local governments.
Another potential loser if Calpers decides to ratchet back its ambitions: private-equity firms. The pension fund was a private-equity pioneer, starting with a $1 billion allocation in 1990 that has since grown to about $25 billion.
A lower assumed rate of return could cause Calpers to reduce its exposure to private equity and other aggressive holdings. The pension fund already is looking to prune the number of private-equity firms with which it invests and reduce its fees by making direct investments in deals.
—Peter Lattman contributed to this article

[Ron Fulderon]

Basically they are blaming the fact that they can't meet their pension requirements on the market because gosh darn it, it's just not doing as well as they expected. It was supposed to always go up a lot.

It's not stated that corrupt promises were made that were ridiculously impossible to meet and way out of line with the private sector.

Wake up and smell the ouzo:

http://tinyurl.com/yljxoln

[Della31Pierce]

Lots of specialists state that home loans aid a lot of people to live their own way, just because they are able to feel free to buy needed goods. Furthermore, various banks give financial loan for all people.

[Larry David]

I was under the impression this site was being edited.

I would like to comment, however, it would be like commenting on the invention of the light bulb.

[editor]

If you care to comment on spam before we get a chance to delete it, that is your perogative. Same with commenting on light bulbs.