It wasn’t long ago that some armchair experts, basing their opinions on data from the previous 10 years, were predicting California’s drought would extend indefinitely.
The short-term numbers were difficult to dispute and there were severe shortfalls in reservoirs. The longer view, however, showed that there had been similar droughts that came and went. Blessedly, so did this one after last winter, one of the wettest seasons on record.
But another group of self-styled experts has grabbed the media megaphone with doomsday predictions about California’s public worker pension funds. They are repeating the same mistake, taking a short snapshot and concluding that it will extend forever.
These Cassandras need to take a deep breath and crack open their history books. Yes, the funded ratio of California’s largest pension fund, CalPERS, is at about 63 percent. But as a recent study by UC Berkeley’s Haas Institute points out, that is simply a cause for some concern – not a signal of impending disaster.
The ratio measures what percentage of 30 years’ worth of pension obligations can be covered by the fund’s assets at a given moment. Much will happen between now and 2047 – and decades of data indicate the trend will be upward.
Just as California has experienced moderate and severe droughts followed by periods of above-average rainfall, investment markets have done the same. The funded ratio of pension funds has risen and fallen like the levels at Lake Shasta.
The 2008 stock market crash triggered a $95 billion loss in CalPERS investments, causing the funding ratio to dip. But those losses were fully recovered by 2013, and investment returns over the last 20 years have averaged 6.7 percent.
Just as the drought led to smart, permanent advances in water conservation, the horrific investment losses from the 2008 financial meltdown triggered permanent reforms that will reduce long-term pension obligations and minimize risk during down markets.
Let us not be misled again by those who would have us believe that every tomorrow will be exactly like today.
Yvonne Walker is president of Service Employees International Union Local 1000. She can be contacted at firstname.lastname@example.org.