David R. Henderson  

California is Broke(n)

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A resident of my city of Pacific Grove recently did a huge service on Facebook by linking to a site that gives pay and pensions for state and local government workers. It's breathtaking.

Question: Who received the highest pension in 2017 and how much was it?
Answer: Ronald D. Miller. $366,529.20.
Mr. Miller was on the teaching faculty at the University of California, San Francisco.

The 7th highest pension, by the way, was received by someone I know and like: Richard W. Roll, the well-known finance professor at UCLA. So this is not a gotcha. It's simply pointing out the huge pensions that many former government workers get and that are bankrupting the state of California.

The numbers on pay are also illuminating. Not surprisingly, the top-paid people are either athletic coaches or medical school professors, with the top among them making over, and, in a few cases, well over, $1,000,000.

What's also striking is to go to the individual cities and check salaries. I live in Pacific Grove, and I was surprised at the people I know who, in 2016, made high 5 digits or low 6 digits. I don't know this for sure, but my gut feel is that they could be replaced by equally productive people making 20% less.

High pay and high pensions seem to be the major contributors to the fiscal problems of both the state government of California and various cities in California that we will be seeing for the next decade or two.

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COMMENTS (9 to date)
Jack PQ writes:

Transparency is good, but--this being an economics blog--I'm not comfortable where this is headed. Who's to say what is the "right" salary for Mr Smith, or the "fair" pension amount for Mrs Jones? I would rather say this:
(1.) Paygo or DB pensions are a ponzi scheme. Period. Now California (and many other places) are stuck with the bill. But nobody forced UCSF to offer their med school profs a DB retirement plan. That said, today those benefiting from DB plans should accept the fact that they will need to suffer a haircut. It is unsustainable to continue paying DB retirement pensions at this rate.
(2.) Quality is costly. Does the UC system need 2 (or more) world-class campuses? Do they need fantastic sports teams? Do they need to have faculty like Richard Roll, one of the 20 most influential finance researchers in history? I don't know the answer. But being world-class is costly, and maybe that should not be a priority when budgets are blown.

Thomas Sewell writes:


One quibble with your analysis.... governments in CA are in fact legally forced to offer DB plans well beyond the point where many would have wanted to.

The "California Rule" from the State Supreme Court is infamous in not allowing pension plan reductions of any sort, even for future work, even for things like the amount of cashed in sick you can count in future years toward boosting your pension.

Certainly if someone worked under an agreement for a particular pension, they should get it, but that's not the same as entitling them to the same deal for the rest of their working/retirement life in the future.

I won't start in on public employee unions vs. voters/taxpayers. But that's another mistake.

Robert Fellner writes:

Hi David,

I run the website. The 2017 data is incomplete and only represents UC pension data. The rest isn't provided until after the close of the reporting year.

So for pensions you'll want to look at 2016 to get the top pension statewide. The first several pages are payouts from the DROP program and are mostly one-time lump sum payouts.

The highest regular annual pension is over $400,000 for a LA County medical profession of some sort. After that it is $395,000 for former Solano County manager and on down the list.


Silas Barta writes:

The problem isn't the magnitude of the pensions. It's the fact that they didn't have to *fund* them at the actuarially correct value when the benefits were earned.

Instead the California government "funded" the pension with IOUs to themselves. Oops.

Dave O writes:

Pensions aren't the problem. The California legislature is. These senate bills on housing are ridiculous.


Peter Gerdes writes:

It seems to me that the clear implication of the title "California is Broke(n)" is that the information revealed in the body of the post is prima facia evidence of bad public policy choices by the state. The post itself only tells us how large the pensions received by certain state workers are while failing to mention any of the issues created by the California rule or how those pensions are funded. It seems to me the clear implication is that readers should find the mere existence of such large pensions to be a problem. If the author had a more nuanced point maybe he will clarify that in the comments.

If this was posted at some other site I might write this off as a complaint by someone who doesn't recognize that pensions trade off against other aspects of a compensation package (and against the backdrop of the California rule it arguably makes sense for state agencies to leverage their ability to offer greater certainty of future payment streams than their private competitors for talent). However, in the context of an econolog post it would seem to be a straightforward suggestion that somehow the state shouldn't be offering anyone (or at least these individuals) that kind of compensation. A view which would be pretty hard to square with the idea that its appropriate for the state to run world class research institutions.

Hazel Meade writes:

Kind of makes me think that the disparity between cost of living in San Francisco vs. other places is a problem.
$300K/year is a fortune pretty much anywhere else. It's still generous even IN San Francisco, but if you retire someplace further inland, you'll be living like a king.
Perhaps pensions (and contributions!) shouldn't be pegged directly to income, but just provide a reasonable amount to comfortably live on.

Darwin Throne writes:


The pension problem is very real across the state of California. Joshua Rauh of Stanford has published a number of studies on pensions in CA and across the country. Most agencies are broke if they take into account their unfunded pension liabilities. It will be very difficult to "fix" this problem until the California Rule is overturned or we run out of taxpayers' money.

El Dorado County has an annual budget of about $300 million and an unfunded pension liability of $325 million. It can't afford to provide basic services such as road repairs because its wages and benefits costs consume about 67% of the budget.

trader jack writes:

fixing can be done, but using the amount paid in by employer and worker each month into an account and at the end of the employment those figures are summed up, calculation of the individual monthly amount based on the term of employment , and basing the retirement on those figures./
Ergo, 100 dollars , 39 years employment, calculate the present worth at prime rate over the term, and pay out that amount over the life expectancy of retiree,
No particular benefit for higher incomes in latter part of employment, but full return of moneys deposited over various times

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