More bad pension news for California cities.

California’s pension funds continue to face a fusillade of bad news, including new reports showing that retirement benefits consume 20 percent of Los Angeles’ general-fund budget. Put another way, one out of every five dollars the city spends goes to a retired city worker, a percentage that has quadrupled in the past 14 years. That’s an astounding number that is crowding out other public services. Things are even more troubling in San Jose, where pensions and retiree health care now consume nearly 28 percent of the budget.
State officials have been giddy that the budget is “balanced” and are eager to spend more money on new programs. But reports a few months ago show the state deeply in the red ($175 billion) under new accounting procedures that reflect pension debts. The California Public Employees’ Retirement System, CalPERS, had investment returns of a measly 0.6 percent last year. Even that union-dominated fund’s top investment officials seem concerned.
During a presentation at the CalPERS Board of Administration meetings earlier this month, Chief Investment Officer Ted Eliopoulos played a video interviewing investment gurus who suggested that CalPERS’ expected rates of return are unrealistically high. In public-pension funds, it’s all about the return rates. For private-sector peons, a rate of return is a rate of return. If I invest in a mutual fund and get a 7 percent rate of return, that’s what I get. If it’s 2 percent, that’s that. I live either with the benefits of soaring investments or the bad news if my investment choices are subpar.