California’s Deficit Requires that CALPERS, STRS Pensioners Pay Their Share

Ralph E. Shaffer
Professor Emeritus of History at Cal Poly Pomona

The economic toll Covid-19 continues to have on California is revealed in an announcement from Sacramento that the state budget faces a $54 billion deficit instead of an expected surplus. With the rainy day fund less than $20 billion, those cuts are falling on most every level of spending. The cuts will impact counties and cities as well as schools, and with local tax revenue down, the deficit can’t be made up there.

While workers and small businesses have been hit hardest, one segment of the state has  fared well during the pandemic. Retirees drawing pensions from the state’s two biggest pension funds – CALPERS for most public employees and STRS for public school teachers – still draw their full pensions despite the financial crisis, but that crisis demands that they endure cuts to pay their fair share of the deficit.

Each evening on television news, viewers watch seemingly endless lines of cars that converged on drive-in food banks earlier in the day as unemployed workers seek to feed their families. Unemployment in this state skyrocketed in April, and over 3 million laid-off workers filed for unemployment benefits by mid-month. More have followed, and the state’s unemployment rate reached 17%, more than the national average, and is expected to climb to 25%.

But it’s not only the workers who face economic  hard times ahead. The state’s small businesses have been hard hit by the closing of non-essential firms and shops, which have both caused a loss in revenue from walk-in customers for retailers, restaurants, barber shops and similar operations, and for those small businesses who cater to other businesses, small and large.The business owner also has rent, mortgage payments, and suppliers to pay, but the shut-down orders have affected those still operating as well as those closed.

Thus, revenue from income taxes, sales taxes, and other business-related  sources of state income have been impacted to the point that the state has to cut those $54 billion from the budget. To ease those cuts, the dire straits in which the unemployed and small businesses have fallen mean that higher taxes on them can’t be a means to offset the loss of revenue.

But those retired teachers, university faculty members and hundreds of thousands of other former public workers still draw a pre-virus pension that most of those unemployed will never equal through future social Security benefits or their IRA investments, if any. And with the stock market still down nearly 10 percent, those who would have retired now may find it necessary to stay at work, if work is available.

So how should the state pensioners contribute their fair share to partially offset the deficit?

The immediate step would be to eliminate for at least one year the annual two percent COLA – the cost of living adjustment – which is a significant part of the CALPERS and STRS payments to retirees. In 2019, a faculty member in the Cal State system, who had retired nearly three decades ago after teaching for 29 years, received a COLA monthly payment of $2767 out of a monthly gross pay of slightly over $6850. The 2019 COLA increase for this retiree was $134 per month. CALPERS paid out over $24 billion in pensions in 2019. Cancelling the COLA increase would have saved the pension fund as much as

$500 million, which could have been applied to the state deficit. With the 2020 COLA two percent higher, the savings would be even greater. Add to that the unknown amount saved from cancelling STRS COLAs.

But the COLA only affects retirees. What about the approximately two million  state and local workers still on the job? That’s for the state employee organizations to figure out. CSEA, the acronym for the California State Employees Association, and the major teacher organizations must offer, quickly, a plan whereby on-the-job workers would feel the financial pinch of  Covid-19, sacrificing an amount comparable to that given up by the retirees.

It will take a great deal of moral courage for these organizations and their members to meet this challenge, but they must meet it.

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