It’s apparent that the 11.2 percent return, as welcome as it may be, did not result from any CalPERS investment acumen. As a recent Wall Street Journal article points out, it reflected what was happening across the spectrum of pension funds, thanks to a booming stock market, and, in fact, fell short of the 12.4 percent median return for such funds calculated by Wilshire Trust Universe Comparison Service.
It would take years of double-digit returns to narrow CalPERS’ pension debt, now more than a quarter-trillion dollars, and reach the 80 percent funded level deemed to be minimally sufficient.
The more likely scenario is that the gap between what it needs and what it has will continue to languish, and even grow, even though CalPERS continues to ramp up mandatory “contributions” from state and local governments – or more accurately their taxpayers. Those inflows have more than doubled in recent years, hitting cities especially hard because they devote so much of their budgets to highly paid police and fire staffs that have the most lavish, and therefore most expensive, pension promises.
A run-up in stocks helped deliver a banner year for America’s public pensions. But the gains won’t be nearly enough to ensure all state and local retirees receive their promised future benefits. Large U.S. systems that oversee retirement funds for police, firefighters, teachers and other public workers earned median returns of 12.4% in the fiscal year ended June 30, according to Wilshire Trust Universe Comparison Service. That is their best annual result since 2014. Yet many of these public pensions remain severely underfunded despite the recent gains, meaning they don’t have enough assets on hand to fulfill all promises made to their workers. Estimates of their collective shortfall vary from $1.6 trillion to $4 trillion.
Double-digit inflation in the late 1970s pushed American families into ever-higher tax brackets (there were 15 at the time). This process, called “bracket creep,” drove up taxes almost 50% faster than inflation, enriching the government while impoverishing workers. Thus even though the 1970s were the postwar era’s weakest decade of economic growth up to that point, federal revenue doubled between 1976 and 1981. Inflation averaged 9.7% during the economic malaise of 1977-80, while government revenue grew by an astonishing 14.8% a year, even as economic growth rates fell steadily and turned negative in 1980. . . . The Reagan tax cuts laid the foundation for a quarter-century of strong, noninflationary growth, which, despite three subsequent recessions, averaged 3.4% until the beginning of the Obama administration. And tax revenue was generated by an expanding economy rather than pilfered through bracket creep.
Soda sales in Philadelphia have also declined since the tax went into effect at the beginning of 2017, threatening the long-run sustainability of the tax. According to some local distributors and retailers, sales have declined by nearly 50 percent. This is likely primarily due to higher prices, which discourage purchasing beverages in the city. Some Philadelphia taxpayers took to Twitter as the tax took effect, noting their plans to shop for groceries outside the city. This kind of tax avoidance is only feasible for consumers with means of transportation, making the tax even more regressive. Purchases of beer are also now less expensive than nonalcoholic beverages subject to the tax in the city. Empirical evidence from a 2012 journal article suggests that soda taxes can push consumers to alcohol, meaning it is likely the case that consumers are switching to alcoholic beverages as a result of the tax. The paper, aptly titled From Coke to Coors, further shows that switching from soda to beer increases total caloric intake, even as soda taxes are generally aimed at caloric reduction.
Despite a systemwide drop off in ridership, almost all BART employees will receive a $500 ridership bonus in their paychecks next month as part of their labor contract, the transit agency said this week. San Francisco Chronicle columnists Matier & Ross first reported the bonus, which will go to 3,600 employees BART employees, except for around 12 or so managers who report to BART General Manager Grace Crunican.