Could California's Pension System Collapse?

CBS13 has uncovered a number of cases where retired government workers in the state of California are receiving very hefty pension checks. How much money are we talking about? Some retired government workers are getting hundreds of thousands of dollars a year, it's getting to the point where critics say California's pension system could collapse.

Former Bell City Manager Robert Rizzo and former Vernon City Manager Bruce Malkenhorst are two of the most dramatic examples of public officials in California who have made millions of dollars each by taking money from taxpayers.

"This is a skunk that stunk up everybody," says Joe Nation, Public Policy Practium at Stanford.

Rizzo was making nearly $800,000 a year. But, Rizzo is certainly not alone. Bruce Malkenhorst was making more than $800,000 a year as the city manager of Vernon, a city with fewer than one hundred residents.

"We're wondering if there would be anybody here who could talk to us about Bruce Malkenhorst," CBS13 reporter Sam Shane.

We went to Vernon to find out how a city with fewer than one hundred residents could pay a city manager more than$800,000. Willard Yamaguchi is the Vernon city clerk who met us in the lobby of the Vernon city hall.

"I'm just wondering in a town like Vernon, how a city like Vernon affords to pay a city manager $800,000 a year?" said Sam Shane

"I'm not aware of that," said Yamaguchi.
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"You weren't aware of how much money he made?" asked Shane

"No," Yamaguchi replied.

It quickly became clear that Yamaguchi was either playing dumb in front our camera or he really didn't know some very basic information the city in which he's the city clerk.

"How big is your city? How many residents here?" asked Shane

"Um, I don't know," said Yamaguchi.

"You don't know how many residents are here?" Shane said.

"I think it's under a hundred," Yamaguchi replied.

It is under a hundred, and most of the residents of Vernon, and the most of the warehouses, and major industries in Vernon get their electricity from power plant owned by the city of Vernon.
"How much money does the power plant generate for your city every year?" asked Shane

"That I couldn't tell you," Yamaguchi said.
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"Is there anybody here who knows the answers to these questions?" replied Shane.

"Probably is, I know the city administrator right now is not available," said Yamaguchi.

"So nobody's available who can answer these questions for us?" Shane said.

"That's why I was asked to come down here," said Yamaguchi "I run my office, we process, we get ready for the meetings, I'm not a numbers guy."

What we do know is officials with the city of Vernon paid Bruce Malkenhorst an enormous amount of money to be their city manager.

"They paid him close to nine hundred thousand dollars a year and they knew it, they were happy to do it," said Max Huntsman, L.A. County Deputy D.A.

Max Huntsman is a Los Angeles County Deputy District Attorney who began investigating Malkenhorst five years ago. So how did Bruce Malkenhorst make nearly nine hundred thousand dollars a year as a city manager of the smallest city in Southern California?

"When he was actually working in Vernon he held approximately six or seven jobs and each job had a full salary that would be the envy of most folks," said Huntsman.

"He had six jobs?" asked Shane.

"Yeah, he was the city clerk, the city manager, and a bunch of other jobs I don't remember the title of," Huntsman said.

Malkenhorst is now retired, and now takes home a pension of more than five hundred-nine thousand dollars a year. He lives in this very comfortable home, in an upscale neighborhood in Huntington Beach. How does Malkenhorst justify taking half a million dollars a year in pension money?

We tracked him down recently at the Los Angeles county courthouse to ask him. Malkenhorst is awaiting trial on charges he spent taxpayer's money on massages and golf outings and political contributions. Standing next to Malkehorst at this hearing was his attorney, Michael Artan. After the hearing, outside the courtroom in hallway where cameras are not allowed to record, we approached Malkenhorst and said we're working on a story about pensions. Malkenhorst's lawyer said, "I understand that, we have no comment."

"There are a lot of cases around the state where you have the exorbitant salaries which lead to these very high pensions," said Joe Nation, Stanford lecturer.

In California today more than 9000 retired government workers, members of CalPERS, take home more than one hundred thousand dollars a year in pension money. More than three thousand retired California educators are each paid more than one hundred grand a year in retirement. Government pensions in California are so out of control that, this year a study out of Stanford estimated that California's top three pensions are five hundred billion dollars short of meeting future requirements. Essentially, it says they're running out of money. Pat Macht, a spokesperson for CalPERS, says the Stanford study is flawed, she called it funny math.

"Academics in their ivory towers are not the ones forced to make tough decisions," said Macht.

Authors of the Stanford study say California's pension problems are serious and deep.

"I think this is the most serious financial challenge the state faces," says Nation.

And it's not just the Stanford study. Recently a professor at Northwestern University projected that California's pensions will run out of cash in 2026. In 2005, the CalPERS fund had $236 billion dollars. Today, after years of bad investments and a faltering stock market, the fund has shrunk to $217 billion

"Does CalPERS admit at least in the smallest degree that there are some problems that need to be addressed here?" asked Shane.

"I think we have been at the forefront of a lot of change," says Macht.

In our interview, Pat Macht said there have been many changes at CalPERS, and she did not admit to any problems.

"We're in good shape. CalPERS is in good shape. We've been in business for 78 years," says Macht.

"Is CalPERS in good shape?" asked Shane.

No, no. I think CalPERS is kidding themselves," says Marcia Fritz.

Marcia Fritz is with the California Foundation for Fiscal Responsibility.

"I think it's as serious as a heart attack," says Fritz.

Fritz is a self-described democrat with an eye for numbers; she's an accountant.

The benefits we've promised simply can't be paid, that's all there is to it. We've got to change things," says Fritz.

She's been warning for some time, that when it comes to California's government pensions, the numbers do -not- add up.

"Do you think the pension system will collapse in California?" Shane asked.

"Yes, I think it's gonna collapse," replied Fritz.

If it does, it will collapse in large part under the weight of fat pension checks to retired government workers like Bruce Malkenhorst and hundreds like him. While CalPERS officials insist they're in good shape, critics and outside researchers say unless there are big changes California's government pensions are in big trouble.