PUBLIC COMMENTS OF MARCIA FRITZ, CPA

July 12, 2007

. . . speaking before California's Public Employee Post-Employment Benefits Commission at its meeting in Burlingame:

Good morning. My name is Marcia Fritz and I am an accountant from Citrus Heights and Vice President of the California Foundation for Fiscal Responsibility.

First, I would like to thank the Commission for its excellent presentation of the facts behind California’s public retiree benefits fiscal crisis. The first-rate witnesses called to testify have provided a broad range of well informed views. The Commission should be applauded for moving beyond those who seek to divert attention from this fiscal crisis and focusing overdue attention on its staggering statistics.

Today the Commission is scheduled to hear from CalPERS Chief Actuary Ron Seeling on the subject of funding retirement systems. The skyrocketing cost of retirement benefits is one of the most important issues, one that CFFR believes must be addressed with less costly benefit levels for new employees.

I look forward to Mr. Seeling’s presentation, especially his explanation of why state pension cost have risen from an average of $700 million a year in the late 1990’s to $2.7 billion in the next fiscal year.

As you can see from the CalPERS package handed to you, back in 1999 CalPERS sponsored SB 400, which granted a large retroactive increase in pension benefits to state employees. At the time, CalPERS actuaries calculated that the retroactive benefits increase would be paid from the high market returns earned during the dotcom boom of the late 1990s.

If you turn to each of the tabs, you will see that CalPERS states, without qualification, that the increase in benefits will not cost taxpayers any more money than was contributed in 1998.

But the reality is much different. As you can see from the chart of actual contributions, CalPERS grossly underestimated the state’s pension obligations. Instead of paying $760 million as projected for this year, the state will spend $2.7 billion. The cumulative error since 2000 has been $9 billion.

That $2 billion error for this year is a substantial portion of the state’s structural budget deficit, one which is keeping legislators from passing a budget today. It would also cover most of the state’s annual required contribution for its OPEB debt. I hope Mr. Seeling will tell us why this year’s actual pension contributions are about 4 times more than his department’s estimates.

Of course the only way to trim long term pension costs is reducing the pension benefits. By extending the retirement age to Social Security age for non-safety employees and adjusting the formulas, the normal cost for most employees drops from more than 16% of salary today, to just 5%.

Those tremendous savings, nearly $500 billion for all state and local agencies, must be used to eliminate the unfunded pension liabilities, outstanding pension obligation bonds and begin to pay retiree health care costs. Let me say that again, the savings from pension benefit cuts are needed to reduce unfunded pension and retiree health care liabilities, regardless any improved funded status of the pension plans.

CFFR looks forward to briefing the Commission staff in the near future and presenting our initiative to this commission in the months ahead.

We hope this Commission’s excellent work in describing our retiree benefits crisis will carry over to developing a meaningful solution. With hundreds of billions of dollars at stake, California needs a strong solution and it needs it now.

Should a meaningful solution elude this body, our initiative will be ready for voter consideration. We cannot afford to promise hundreds of thousands of new public employees budget-breaking retirement benefits.