I live in California and try to keep up on the local news. Interestingly enough, something that somehow has escaped me and seems to be out of the public spotlight is the news of the HUGE losses that calPERS has taken. For those of you that don’t know, calPERS is California’s largest public pension fund. The Sacramento Bee reports that Taxpayers eventually could pay as CalPERS loses billions.
Earlier this week, CalPERS warned that its investment losses – 19 percent since the fiscal year began July 1 – could force CalPERS to demand higher contributions from the state, municipalities and other public agencies that rely on the fund for pensions. The warning came in a CalPERS staff report.
And more from the same article:
The state declined to estimate how high its CalPERS bill might climb, but the city of Sacramento could see its costs jump by $8 million to $16 million a year, said City Treasurer Russ Fehr. The increase, if it occurs, would begin in July 2011.
“This is alarming,” he said, noting that the city is already struggling under a deficit. “This is one of the consequences of what’s going on in the world and how it rolls down to local governments.”
In addition to CalPERS losing billions, the second largest public pension fund also had HUGE losses:
The state’s other big pension fund, the California State Teachers’ Retirement System, is also experiencing substantial losses but isn’t yet making predictions about employer contribution rates.
Pension costs can sink a municipality’s budget. They led to a big scandal in San Diego earlier this year and helped force the city of Vallejo to file for bankruptcy.
What they don’t tell you is that these pensions flat out gambled with sacred, hard-earned government employees money! And what did they gamble in? Why, the most stable and sound investment there is — real estate! Michael Shedlock at Global Economic Analysis writes that Calpers To Report Losses of 103% on its Residential Investments. He quotes the Wall Street Journal article:
At the height of the property bubble, California’s giant pension fund, Calpers, made a fateful decision: It aggressively poured money into real estate. As a result, today it’s one of the biggest owners of undeveloped residential land in America.
And more:
Calpers in recent weeks said it expects to report paper losses of 103% on its residential investments in the fiscal year ended June 30. That’s because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed.
I also read that not only did they “invest” in real estate at the very top of the bubble, they also “invested” heavily in commodities at the top of the commodities bubble!
California is hosed. Now more and more money will be demanded from cities and municipalities because of the ineptitude of the state government in managing pensions. In the meantime, California’s state budget is facing record breaking deficits which undoubtedly will cause the government to make severe cuts (meaning firing people) and to raise taxes. Currently unemployment is over 8.5% and climbing fast! Of course, this is happening at the same time that billions are being lost in the equity of Californians’ homes. This is coming after millions of dollars were lost due to the actors strikes and millions more, maybe hundreds of millions more, that were lost due to the recent wildfires that burned hundres of homes. How are Californian’s going to deal with this? Do you think that they are going to work hard, sacrifice and start being frugal? Hardly. Another riot, just like the one after the Lakers won the championship, will more likely be the “solution”. The future isn’t bright for the zombie State…. uh… I mean Golden State.
In my view, it’s time to get out of California, at least out of the major cities, while you still can. If there is one place that the zombies are coming, it’s California.
Wow! And this one is just plain insulting!
RE: “Wow! And this one is just plain insulting!”
California is like a car on the brink of a disastrous economic cliff and the best we can hope for is to somehow slide down it with only major damage instead of as a rolling ball of fire. After the crash, California won’t be the same. And why is California on the brink? Surely some of the reason can be attributed to influences beyond Californian’s control but some of the blame should stand directly on us. Maybe you take it as insulting and that’s okay but it’s the truth. The bottom line is that we should feel ashamed of what has happened to this state. California has the potential to be the biggest and brightest example of a wonderful state. Instead we are an example of disaster.
So how is this insulting? Is it that Californians, generally speaking, aren’t going to be able to deal with the financial mess we are in by hardwork and sacrifice? That instead I’m predicting that Californians are going to riot? Surely there are plenty of people who work hard and sacrifice but I believe California will take bailout loans from the federal government before it decides to cut “entitlement” spending.
We’ll just have to see whether I’m right or not; whether there are riots; whether California goes into huge debt to the federal government; and whether the government will increase taxes instead of cutting entitlement programs. The places where they will cut spending will be police, education, public works, etc. Mark my words… riots by at least sometime in 2010.
If by ‘Californians’ you mean the state legislature then I’m onboard and I agree. But the way it currently reads alludes to Californians as the population of California. I think there is a massive disconnect between the people of California and what the people in Sacramento are doing in our name.
Yes, I agree, the government federally and in California are doing crappy jobs.
As a Californian I do not stand behind the majority of what my elected officials do in my name.
If however you mean ‘Californians’ as the general population then I respectfully disagree.
I mean both. I don’t feel I can separate the government from the people. The government is of the people, by the people and for the people. The people created the government and continually elect it and are ultimately responsible for it’s actions. While I don’t espouse many of the views or agree with some of the legislation passed by our government, I am still held somehwat responsible along with every other resident of California for the well-being of the state. Could we have done more to lobby for or against legislation or elected officials? Could we have done more to persuade our friends, colleagues and acquaintances about what is best for the state? Could we do more to volunteer our time to improve this state? This isn’t targeted at a certain group, or political party. This is targeted at Californians as a whole, collectively speaking. When I say “Californians”, I mean the people and the government. This includes me which is one of the reasons, at least in part, for why I’m writing this blog — to say, “Hey, look what’s happening! We need to get ready, and we need to do our best to make a change.”