Originally Released  January 2007

In a bombshell expose of California’s massive unfunded public employee benefits Full Disclosure Network® is featuring a two-part series with public employee officials and finance expert  B. Scott Minerd, CEO Guggenheim Partners, Asset Management.

WATCH: Eleven Minute Preview of Series Here

Scott Minerd was a moderator at the Milken Institute’s “State of the State Conference” last fall, for a panel discussion entitled “The Ticking Time Bomb.   Expert panelists featured are:

  • Hon. Keith Richman, MD, California State Assembly
  • Carl De Maio, CEO Performance Institute
  • Jack Ehnes, CEO California State Teachers Retirement System (CALSTERS)
  • Dave Low, California School Employees Association
  • Barbara Lloyd, Sr. Vice President Lehman Brothers

Highlights from the six segments in Full Disclosure® series:

Segment #1:  Scott Minerd describes his role as a Managing Director of Credit Suisse he exposed the risky concentration in derivative securities which directly led to the liquidation of the Orange County investment portfolio and the county’s subsequent bankruptcy.” He defines the new GASB (General Accounting Standard Board) rules and estimates new disclosures will reveal $300 to $400 billion in unrecorded benefits owed to California public employees.

Segment #2: Will Municipal bankruptcies spread across California?  Minerd suggests that pension benefit debt is unanticipated by the public and bond rating companies.  The $300-$400 billion debt is “present value” but Minerd adds” the actual sum is more likely a trillion dollars.

Segment #3:  How widespread are the unfunded liabilities?  Assemblyman Keith Richman cites the counties of San Diego, Contra Costa and Orange County (again) that have billions in unfunded public employee pension benefits. Minerd suggests the alternatives: (1) Attempt to fund now (2) Ignore and pay as you go, hoping for the best (3) Break the promises made to public employees by redefining benefits, employees working longer, caps on amount of benefits.

Segment #4: What role have politicians and public employee unions played in this crisis? Carl DeMaio CEO Performance Institute cites retroactive benefits approved by elected officials, and pension benefit debt is $130 billion before unfunded health care benefits that is three times all  outstanding debt now in California.  Keith Richman cites State Legislative Analyst reports that School Districts are likely to go bankrupt, citing LAUSD’s own report of $10 billion debt that will cost $2,100 per student per year for the next 30 years to pay off.

Segment #5: Barbara Lloyd of Lehman Bros. Cites that only ten percent of Counties have funded or partially funded public employee benefit plans. And, that these plans include coverage for spouses, survivors even after medicare age.  Scott Minerd suggests that the stock market performance on benefit plan investments have no impact on government pension plans where no money has been set aside.

Segment #6:  Infrastructure Bonds of $40 billion will cost another $40 billion in interest.  Scott Minerd and other experts on the Milken Institute panel maintained that infrastructure projects should be paid for out of the general fund because it is an investment in the future.  “The electorate is as guilty as the politicians….by saying what is good for me today, let someone else pay for tomorrow”  Minerd suggested that when voters approved the bonds “all it did was allow the state to spend more on other things and not to address the true fiscal issues.”

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