Tuesday, July 24, 2018

Transparent California's Robert Fellner On Sierra Madre's $5 Million Dollar CalPERS "Lump Sum Prepayment"

Mod: Sometime early yesterday afternoon Transparent California's Robert Fellner left a comment on last Saturday's post (link) about that $5 million dollar lump sum prepayment to CalPERS the City Council will contemplate tonight. Robert's verdict? He likes it. I emailed and asked if he would explain why he feels that way. Here is what was kindly sent back:

Pension funding is very complex, so it is often helpful to make comparisons that are not entirely accurate, but help illustrate the point nonetheless. So with that disclaimer in mind, the $5 million prepayment is similar to paying down your mortgage at a faster rate.

While that initial payment obviously increases costs today, you end up saving money by having to pay much less in interest over the remaining payment periods — which are now shortened thanks to the lump sum extra payment, ie your debt will be paid off sooner, and at a lower total cost, than if you simply made the monthly minimum payments.

That’s basically the scenario here. So as the city points out in the document you link to at end of your post, that $5 million dollars paid today knocks nearly $12 million off the amount Sierra Madre owes to CalPERS.

In addition to reducing long-term costs, I think this is smart because it leaves the city better protected should an economic downturn hit. Cities who do not address their existing debts will fare much worse if/when the next market downturn hits, and CalPERS costs explode.

So paying down as much as you can now, when things are good and you can afford to, will make that scenario more manageable.

I think it’s a prudent, fiscally responsible move. Far too many officials care only about keeping costs low under their watch, knowing that if residents get screwed in the next 10-20 years, it will be someone else’s problem. So I’d give Gabe and whoever else is responsible for this policy some much-deserved praise.

One more positive effect: reducing their outstanding debt could also increase the city’s credit rating, which would mean lower interest costs on other loans.

Robert Fellner - Executive Director, Transparent California

ModSierra Madre is not the only city taking this road. What follows is an article from the San Diego Union-Tribune that describes similar efforts there. Obviously the numbers are far larger, as are both savings and risks.

San Diego may accelerate paying off pension debt, which could create budget woes (San Diego Union-Tribune link): San Diego may accelerate paying off the city’s pension debt of $2.76 billion to avoid leaving taxpayers with a long-term bill they can’t afford, but the move could spike the city’s annual pension payment and force budget cuts.

Members of San Diego’s pension board say they will weigh their long-term goals against any short-term impacts to the city’s budget when they consider in September new policies for handling increases in the projected pension debt. For more than a decade, the pension system has softened impacts on the city budget of new pension debt by spreading corresponding increases in the city’s pension payment over either 15 years or 30 years.

No one is suggesting the pension system immediately pay off such increases in debt, which are caused by stock market losses, shrinking long-term investment expectations and increased estimates of how long employees will live.

But board members, during a preliminary discussion this month, analyzed scenarios under which the pay-off periods for such new debt would shrink to as little as five years. Under such a scenario, the city’s annual pension payment would increase from about $350 million per year to about $530 million per year over the next five years.

Board members said such a spike would probably be too extreme, but directed the board’s investment committee to present as many as five options for accelerated payoff periods during the September board meeting.

The board, however, may decide to have the new payoff policies only apply to new pension debt the city faces in the future, instead of having them apply retroactively to previous debts for which payoff periods are already spread over 15 or 30 years.

Potential policy changes have been prompted by concerns about a significant down turn in the stock market that many financial analysts are predicting.

Mod: The rest of the Union-Tribune article is available at the link. 

sierramadretattler.blogspot.com

32 comments:

  1. Once again CalPERS has become a perpetual albatross hanging around the necks of all California cities who bought in on this malfunctioning pension system. A cheaper method of managing this money and system needs to be found in 2018.

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  2. Everything about CalPERS seems fishy. How many CalPERS executives have been arrested/convicted? I don't think any of it is coincidental. It all just seems like a House of Cards.

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    Replies
    1. It's not like the CalPERS CEO and/or any police officers have actually been convicted for CalPERS-related crimes. Oh, wait...

      http://fortune.com/2016/06/01/ceo-calpers-prison-bribery/

      "A former chief officer of Calpers, the nation’s largest public pension fund, was sentenced by a federal judge in San Francisco on Tuesday to 4-1/2 years in prison on a bribery conviction."

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    2. That one regards Federico Buenrostro. Here is one regarding Alfred J.R. Villalobos, another former CalPERS executive, who committed suicide before his federal charges for (you guessed it) bribery and fraud. Not incidentally, and for obvious reasons, both were big cheerleaders for local law enforcement.

      http://www.latimes.com/business/la-fi-villalobos-suicide-20150115-story.html

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  3. Thanks Mod, and thanks Gabe.
    No thanks in the real world where the rest of us scratch out a living.
    The council in good faith, needs to stop spending money on items like flashing walk/dont walk signs; apply any money to getting the city out of debt.

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    1. Can the police officers carry us across the dangerous streets?

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    2. For how much cops are overpaid, they should do more than just carry us across the streets. They should be our damn butlers and gardeners.

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  4. How did we ever get into this condition? Has that ever been explained?

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    1. Here's a fantastic LA Times article that is the best I've seen at explaining how we got here: http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/

      And here's my take, which focuses mostly on Nevada but the underlying principles are the same here: https://mises.org/wire/government-pension-plans-are-headed-disaster

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  5. If any of the readers have parents or had grandparents that lived through the depression, they may remember hearing: "when times are tough, live well below your means." Sierra Madre should think of itself as always facing tough times. If you drive down Santa Anita past Arcadia's median redo you can see there is a city with money to burn. Not here. Provide the basics, clean reasonably priced water, streets that won't tear up your car, fire and police protection within the budget constraints of the city, a modest library earthquake repair/ADA upgrade, etc. Skip the flashing crosswalk signs and don't even consider the Lime Bikes (some cities are already abandoning that ill-faited idea).

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  6. Arcadia is living way above there means. Look at there debt. City councils are all the same.

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    Replies
    1. but look at the beautiful new median dividers on Santa Anita and Huntington Drive.
      Just a question....has anyone seen a BROWN lawn in front of the Mc Mansions in Arcadia?

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  7. Hahaha, yes, no lime bikes. We have spotted some bike stands around downtown, none of them match.

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    Replies
    1. Pasadena has fired their Metro bikes. It was costing the city a lot and they weren't being ridden as much as everyone said they would.

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  8. Reduce the library hours and personnel, realistic goals until fund-raising for necessary repairs has been accomplished.

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    1. Oh No you can't reduce the library hours. The library is Sierra Madre's golden cow. lol

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  9. Appears as if this article regarding this city council's willingness to spend our money is as well attended as the council meetings.
    Transparent California has clarified the reasons why the City Manager Gabe Engeland had to restructure CalPERS payments.
    Good job Mod and Mr. Engeland.

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  10. When will Transparent California come out in favor of Transparent Tax Receipts—who pays and how much?

    TC only want to show expenditures for wages, benefits, and pensions. We need to know who pays taxes and how much.

    And how about naming every company and their owners that have government contracts, amounts paid to them, who granted contracts, etc.

    Sunlight should shine across the entire spectrum.

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    Replies
    1. It's none of your business how much private people and private business pay in taxes.

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    2. 2:10 threatened by TC much?

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    3. Weird question 3:48, but since you asked, not threatened at all.

      Why is ok to know what government employees make? Isn't income private. You want to keep tax payments private because you're not paying your fair share, right? Bet you have a cash business. Or maybe you're padding your deductions.

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    4. 9:52 I'm not being paid by the taxpayers so my income isn't public. Nor should it be. I quit my govie job and went out to make an honest but less profitable living many years ago.

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  11. It is hard to appreciate how much time it takes for a private resident to keep on top of all the city activities. That is why it is good for a group to join together and share the effort. This has happened in the past and many projects were watched closely by groups that helped form good policy for various protections: hillsides development zone, canyon zone, downtown zone, general plan, residental development standards, One Carter, Monastery (on going).

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    1. If you look at who was involved in the projects listed above, you will discover it has been the same people. It's now time for all those who chant "WE LOVE SIERRA MADRE" to get involved and stop making excuses. Reset your priorities or there will be nothing left to love.

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    2. It's an endless fight - and I don't think the General Plan is worth the paper it's written on.

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    3. The current council will not fight to protect the monastery. All that has to happen is for the good brothers to hire Richard MacDonald, the developers' boy, and he'll huff and puff and the city will fold.

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    4. You usually don't get involved until your 'ox is gored.' Yes, it is time for some new folks to chop wood and carry water.

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  12. After wading through the Pension Rate Stabilization Plan Staff Report, I appreciate Fellner's clarification (confirming) the main items in the report. Thanks Mod and Fellner for bring this to us.

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  13. Mayor Garcetti says he is looking for more cities like West LA, he has more give away scooters and helmets inorder to have less cars on the road!

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  14. Not only did the Council approve the 4 flashing (which I thought prudent) they approveed 9 flashing signs. Over the top. I can see it now, kids going up and down the boulevard hitting the walk lights at every crosswalk.

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  15. Hey Director Gonzalez finally got around to releasing a current projects list, dated July 17. Grim reading:
    http://cityofsierramadre.com/UserFiles/Servers/Server_212309/File/Current Planning Project List Rev. July 17, 2018.pdf

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  16. When CalPERS goes under, let's not forget all the cop unions that always fought to intimidate our politicians to increase local law enforcement's salaries and benefits.

    BlueISIS has a lot more power over us than we realize. The only ones that cops "protect and serve" are themselves.

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