Explaining the Pension Crisis – Additional Graphics

The following set of five financial graphics are offered as additional templates (ref. previous post “Graphics to Explain the Pension Crisis to Colleagues and Constituents“) that can be prepared and used by any local elected official, journalist, or citizen activist who wants to explain to others how pension obligations affect the financial health of their city, county, or other public agency. These graphics were compiled by Pete Constant, who served on the City Council in San Jose from 1989 to 2000, and is currently the CEO of the Retirement Security Initiative, a bipartisan advocate for fair and sustainable pensions. Constant presented these graphics as part of a day-long training and networking event for local public officials sponsored by the California Policy Center on Dec. 2, 2017 in San Ramon, California.

Although the first two slides present the exact same information as those in the previous post, the format of these slides are slightly more simplified. Depending on the audience you are addressing, either style may be appropriate. The final three slides present statewide pension data that was not included in the previous post. Readers are invited to skip to slide #3 if they wish to avoid repetition.

#1 – San Jose General Fund Deficits

In this slide, it is immediately clear to the viewer that there was a huge correlation between the timing of pension reform in the city, 2011, and the year that the city began to get their deficits under control.

#2 – The Crushing Burden of San Jose Retirement Costs

This slide shows how over a ten year period, from 2005 to 2014, pension plan contributions increased from less than $100 million per year to $300 million per year, a cumulative increase of nearly one billion dollars.

#3 – CalPERS: 17 Years of Systemic Failure

This slide shows the precipitous drop in funding status for CalPERS between 1999 and 2015. Back in 1999, when pension benefit formulas began to be increased based on the stellar stock market performance of the late 1990’s, CalPERS was actually running a surplus. That is, the value of their invested assets exceeded the present value of the future retirement obligations they had towards their participants by over $32 billion. But by 2015, CalPERS was in the hole to the tune of $111 billion.

#4 – CalPERS: 17 Years of Systemic Failure

This slide graphically depicts a similar story of losses for CalSTRS between 1999 and 2015. Back in 1999 CalSTRS was running a surplus of $3.7 billion. But by 2015, CalSTRS liabilities exceeded their assets by over $96 billion.

#5 – Large Cities: Retirement Payments as a Percent of Total Revenue

This slide is taken from a major study of public sector pensions published in July 2016, “An Overview of the Pension/OPEB Landscape” by Alicia H. Munnell and Jean-Pierre Aubry at the Center for Retirement Research at Boston College. This particular slide is Figure 15 in that study – anyone wishing to learn much more about the nationwide scope of the public sector pension crisis should read this study, as well as the updates. In this analysis, the authors show the current employer retirement benefit payments (solid portion of bars) as a percent of total revenue for the largest cities in the U.S. These payments are primarily contributions to the pension funds, but they also include interest payments on pension obligation bonds (many agencies have borrowed money to make their annual pension contributions and now pay interest on those bonds), plus payments for “OPEB” (other post employment benefits) which is primarily employer paid health insurance for retirees.

Noteworthy is the fact that many of the worst cases (highlighted in yellow) are cities in California, with San Jose at position #3. Also noteworthy is the lighter shaded upper portion of each bar, which represents the additional amount that these cities would have to pay if they made slightly less optimistic assumptions, primarily regarding how much their investments could earn. The lower investment assumption used by the authors was 6% per year, which is still a very reasonable long-term average. As can be seen, in most cases the payments cities would have to make, as a percent of their total revenue from taxes and fees, would have to nearly double under this more conservative set of assumptions. This data indicates it is possible some of these cities will be paying an astonishing 50% or more of their total revenue just to pay for retirement benefits for their current and retired employees.

Food for thought as we enter the eighth consecutive year of a bull market in stocks, real estate, and bonds.