CALIFORNIA’S BAD BET MAKES JP MORGAN’S LOOK MINOR
|June 20, 2012||Posted by steveparkhurst under Uncategorized|
Worrisome as that gamble was — after all, the banking crisis was largely due to bad bets by banks — it is unfortunate that Congress has never called hearings on a far bigger bet, one that has had more catastrophic consequences for millions of taxpayers.
The one I’m referring to was made by California legislators on Sept. 10, 1999. They decided that investment gains would cover 100 percent of the cost of retroactive pension increases they granted that day to hundreds of thousands of state workers.
The politicians made the wrong bet — and the result has been a penalty to California’s budget that has averaged $2 billion a year ever since and that will cost the state billions more for decades to come.
Promising that “no increase over current employer contributions is needed for these benefit improvements,” and that the state pension fund would “remain fully funded,” the proposal, known as SB 400, claimed that enhanced pensions wouldn’t cost taxpayers “a dime” because of healthy investment returns. The proposal went on to assert that it “fully expects” the state’s pension costs to remain below $766 million a year for “at least the next decade.”
Read more at Bloomberg.com