Tag Archives: California

Stanford Says Soaring Public Pension Costs Devastating Budgets For Education And Social Services, by Tyler Durden

In 15 years, public pensions share of California’s budget has tripled. From Tyler Durden at zerohedge.com:

A new study from Joe Nation of Stanford’s Institute for Economic Policy Research entitled “Pension Math: Public Pension Spending and Service Crowd Out in California, 2003-2030,” says that the devastating consequences of the ill-advised, Cadillac pensions doled out to America’s public employees over the past several decades are only getting started. 

Looking back at taxpayer contributions to public pensions in California, Nation found that they’ve increased by 5 times since 2002-2003 and are very likely to double again by 2029-2030.  Not surprisingly, that kind of hyper-inflationary growth has massively outstripped increases in tax revenue, even in the great progressive state of California (shocking, we know), meaning that pension contributions now account for 11.4% of California’s operating budget, up 3x from the 3.9% it consumed in 2002-2003.

For more than a decade, public pension costs have been rising sharply in California. There is contentious debate about what is driving these cost increases—significant retroactive benefit increases, unrealistic assumptions about investment earnings, operational practices that mask or delay recognition of true system costs, poor governance, 1 to name the most commonly cited. But there is agreement on one fact: public pension costs are making it harder to provide services that have traditionally been considered part of government’s core mission.
  • Employer pension contributions (i.e., pension contributions plus debt service on any Pension Obligation Bonds) from 2002-03 to 2017-18 expanded on average 400%, i.e., contributions in nominal dollars are now five times greater.
  • Employer contributions are projected to rise an additional 76% on average from 2017-18 to 2029-30 in the baseline projection and 117%, i.e., more than double, in the alternative projection.
  • Employer pension contributions from 2002-03 to 2017-18 have increased at a much faster rate than operating expenditures. As noted, pension contributions increased an average of 400%; operating expenditures grew 46%. As a result, pension contributions now consume on average 11.4% of all operating expenditures, more than three times their 3.9% share in 2002-03.
  • The pension share of operating expenditures is projected to increase further by 2029-30: to 14.0% under the baseline projection—that is, even if all system assumptions, including assumed investment rates of return, are met—or to 17.5% under the alternative projection.
  • The average employer funding amount expressed as a percent of active member payroll, i.e., the employer contribution rate,5 has increased from 17.7% in 2008-09 to 30.8% in 2017-18. By 2029-30, it reaches 35.2% under the baseline projection and 44.2% under the alternative projection.
  • On a market basis, the average funded ratio fell from 58.5% in 2008 to 43.0% in 2015. By 2029 it improves to 48.2% in the baseline projection, but falls to 39.0% in the alternative projection. The unfunded liability per jurisdiction household on an actuarial basis also rose from an average $1,682 in 2008 to $5,071 in 2015; the unfunded liability per household on a market basis is $21,491, up from $9,127 in 2008.

To continue reading: Stanford Says Soaring Public Pension Costs Devastating Budgets For Education And Social Services

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How California Enabled Tesla By Forcing Competitors To Subsidize A Losing Business Model, by Tyler Durden

Elon Musk seems to exercise a Rasputin-like hold on the minds of many politicians and bureaucrats. From Tyler Durden at zerohedge.com:

It is no great surprise that Tesla hemorrhages cash.  As we pointed out last month when they reported Q2 earnings, making products that actually generate a return on capital for shareholders isn’t a strong suit of the Silicon Valley powerhouse.  In fact, Elon Musk managed to burn through a record $1.2 billion of cash in Q2 alone, or roughly $13 million dollars every single day.

But, as Bloomberg points out today, the one ‘product’ which Tesla is actually able to sell for a profit is one which was created out of thin air by the state of California and is perhaps the only reason that Elon Musk even has a business to manage.  Of course we’re talking about the ever controversial “Zero Emission Vehicle” credits which are less of “product” and more of a subsidy provided by Tesla’s competitors, or more accurately the consumers of those competitors who are forced to pay higher prices for their Ford Focus all so Elon Musk can practice digging tunnels.

Tesla Inc. has generated nearly $1 billion in revenue the last five years from an unlikely source: Rival automakers. The payments are part of an unpopular system in California that’s poised to proliferate elsewhere.

California requires that automakers sell electric and other non-polluting vehicles in proportion to their market share. If the manufacturers don’t sell enough of them, they have to purchase credits from competitors like Tesla to make up the difference.

Tesla, which exclusively sells battery-powered models, sold $302.3 million in regulatory credits last year alone. China and the European Union — two of the world’s biggest auto markets — are considering mandates and credit systems similar to California’s. If California is any guide, automakers will resent having to buy from peers, including the electric-car maker led by Elon Musk.

“It really makes them mad that Tesla got so much of a boost out of being the only purely electric car manufacturer out there,” Mary Nichols, the chair of the California Air Resources Board, said in an interview Friday at Bloomberg’s headquarters in New York. “In effect, they helped to finance this upstart company which now has all the glamour.”

To continue reading: How California Enabled Tesla By Forcing Competitors To Subsidize A Losing Business Model

Is California Bailing Out Tesla through the Backdoor? by Wolf Richter

Knowing California and knowing Tesla, it’s not even a spoiler to say the answer to the title questions is: Sure looks like it. From Wolf Richter at wolf street.com:

Tesla will lose federal subsidies; so something big needs to be done.

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout.

Tesla will soon hit the limit of the federal tax rebates, which are good for the first 200,000 EVs sold in the US per manufacturer beginning in December 2009 (IRS explanation). In the second quarter after the manufacturer hits the limit, the subsidy gets cut in half, from $7,500 to $3,750; two quarters later, it gets cut to $1,875. Two quarters later, it goes to zero.

Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins. A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t.

This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled.

That’s what Tesla is facing next year in the US.

In California, the largest EV market in the US, 2.7% of new vehicles sold in the first quarter were EVs, up from 0.4% in 2012, according to the California New Dealers Association. California is Tesla’s largest market. Something big needs to be done to help the Bay Area company, which has lost money every single year of its ten years of existence. And taxpayers are going to be shanghaied into doing it.

To make this more palatable, you have to dress this up as something where others benefit too, though the biggest beneficiary would be Tesla because these California subsidies would replace the federal subsidies when they’re phased out.

To continue reading: Is California Bailing Out Tesla through the Backdoor?

New Cali Budget Warns CalPERS Contributions “On Track To Double” In 6 Years, by Tyler Durden

The fuse on the pension bomb gets shorter and shorter. California is running out of accounting tricks and gimmicks, so contributions have to increase. From Tyler Durden at zerohedge.com:

In his latest budget proposal, California Governor Jerry Brown, who continues to vehemently pursue various multi-billion dollar pet projects like the high-speed rail and the so-called “Delta Water Fix” despite his state teetering on the brink of insolvency, has finally admitted that CalPERS, California’s public pension system, is a total disaster.

Apparently Brown finally came to the realization that a 65% funding ratio is slightly less than ideal, especially since we’re on the precipice of a massive wave of Baby Boomer retirements, and warned that the “state’s contributions to CalPERS are on track to nearly double by fiscal year 2023?24.”

As of June 30, 2016, CalPERS reported that the state plans’ unfunded liability totals $59.5 billion and is 65 percent funded, meaning that CalPERS only has 65 percent of the funding required to make pension payments to state retirees.

Without the supplemental payment, by 2023?24, the state’s contribution is estimated to reach $9.2 billion ($5.3 billion General Fund), due to anticipated payroll growth and the lower assumed investment rate of return.

But don’t worry, it’s nothing that a little extra taxpayer-funded bribe to organized labor can’t fix…how does an extra $6 billion sound?…is that sufficient to buy your votes for a few more election cycles?

The May Revision includes a one?time $6 billion supplemental payment to the California Public Employees Retirement System (CalPERS) in 2017?18. This action effectively doubles the state’s annual payment and will mitigate the impact of increasing pension contributions due to the state’s large unfunded liabilities and the CalPERS Board’s recent action to lower its assumed investment rate of return from 7.5 percent to 7 percent.

And for those who might be worried that a doubling of California’s annual pension contributions seems like a huge burden for taxpayers to absorb…fear not, because they’ve basically already doubled over the past 5 years…so Brown has experience in “managing” such catastrophes.

To continue reading; New Cali Budget Warns CalPERS Contributions “On Track To Double” In 6 Years

California Is Exporting Its Poor To Texas, by Tyler Durden

If you have the misfortune to be poor in California, you won’t be able to afford it and you’ll have to move somewhere else. Sorry. From Tyler Durden at zerohedge.com:

California exports more than commodities such as movies, new technologies and produce. As The Sacramento Bee reports, it also exports truck drivers, cooks and cashiers.

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.

“There was really nothing left for me in California,” said Kundurazieff, who also writes a blog about his cats. “The cost of living was high. The rent was high. The job market was debatable.”

Not surprisingly, the state’s exodus of poor people is notable in Los Angeles and San Francisco counties, which combined experienced a net loss of 250,000 such residents from 2005 through 2015.

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.

To continue reading: California Is Exporting Its Poor To Texas

 

California, Nestle and Decentralization, by Antonius Aquinas

California is driving out businesses and productive people with its onerous taxes and regulation, but California’s liberals assume everything will turn out okay, because things are always golden in the Golden State. Until they don’t. From Antonius Aquinas on a guest post at theburningplatform.com:

Nestle USA has announced that it will move its headquarters from Glendale, California, to Rosslyn, Virginia, taking with it about 1200 jobs. The once Golden State has lost some 1600 businesses since 2008 and a net outflow of a million of mostly middle-class people from the state from 2004 to 2013 due to its onerous tax rates, the oppressive regulatory burden, and the genuine kookiness which pervades among its ruling elites.* A clueless Glendale official is apparently unconcerned about the financial repercussions of Nestle’s departure saying that it was “no big deal” and saw it as an “opportunity,” whatever that means!

The stampede of businesses out of what was once the most productive and attractive region in all of North America demonstrates again that prosperity and individual freedom are best served in a political environment of decentralization.

That the individual states of America have retained some sovereignty despite the highly centralized “federal” system of government of which they are a part has enabled individuals and entrepreneurs living in jurisdictions that have become too tyrannical to “escape” to political environments which are less oppressive. This, among other reasons (mainly air conditioning), led to the rise of the Sun Belt as people sought to escape the high taxes and regulations of the Northeast to less burdensome (and warmer!) southern destinations.

This can also be seen on a worldwide scale. The US, for a long time, had been a haven of laissez-faire economic philosophy, which, not surprisingly, became a magnet for those seeking opportunity and a higher standard of living. No longer is this the case as increasing numbers of companies and individuals are seeking to avoid American confiscatory tax and regulatory burdens and move “offshore” or expatriate to more favorable economic climates.

To continue reading: California, Nestle and Decentralization

A Toast to California’s Secession, by Robert Ringer

To California: Don’t let the door hit you on your ass on the way out. From Robert Ringer at lewrockwell.com:

There’s been a lot of talk recently about California seceding from the union. It’s akin to Hollywood celebs vowing to move out of the country if a Republican wins the White House. Meaning that it’s all bluster. Those who extol the virtues of the People’s Republic of California love to make hollow threats, but they possess neither the courage nor the financial resources to back them up.

If California were ever on its own, within six months of its “independence” it would be unable to function at even a survival level. Though it boasts the sixth largest economy in the world (larger than that of both Brazil and France!), there’s no economy big enough to keep a Marxist country afloat. This has been demonstrated time and again in such failed nations as Cuba, the Soviet Union, Mozambique, and every other country that has experimented with socialism/communism in any of its hideous forms.

The majority of California’s adult population consists of adult children whose brains have never developed beyond adolescence. They cling to a stunted Woodstock mentality that makes them incapable of rational thought, which, if not addressed professionally, has the potential to be fatal. They live in an Oz-like land of constant frustration, which causes them to resort to tantrums and violence as the combined solution to every perceived problem.

The bottom line to all this is that a majority of Californians are not able to function as self-sustaining adults in the real world, so they irrationally dedicate themselves to the impossible task of trying to remake our imperfect world into a perfect world they create in their soiled minds.

To continue reading: A Toast to California’s Secession