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Guest perspective: Unfunded pension liabilities — The unspoken
March 24, 2014, 05:00 AM By Art Kiesel

In July and August of 2012, I wrote about pension reform and then in April and May of 2013, I wrote again about California Public Employee’s Retirement System contributions. I am as concerned now as I was then about the escalation of impending financial woes we will be faced with in the near future — unfunded pension liabilities and the lack of any meaningful remedies.

CalPERS has indicated that it is planning to increase rates even further. There is even talk that Vallejo, which has recently gone through municipal bankruptcy (Chapter 9), is on the verge of revisiting the process again as a result of not addressing its unfunded pension liabilities.

In 2012, San Jose votes overwhelmingly passed a ballot measure (Measure B) to reduce pension costs only to be judicially overturned citing what has become the California Rule created in 1955. The California Rule does not allow the rolling back of any pension benefits for current employees. The California Rule prohibits current municipal employees from being forced to contribute significantly more toward their pensions. There was also a judicial ruling that protects the contract rights of employees.

Although pensions are “protected” by the California Rule, salaries are not. Salary increase for cost of living adjustments can be revoked but pension cost of living salary increases once established cannot be reduced. However, salaries can be cut to offset the increased pension costs. This type of salary cutting would certainly be some small glimmer of hope to the financial woes of the municipalities and ultimately the taxpayers, but would certainly serve to polarize public employees and their unions against the municipalities.

It is no secret that most of the current public pension systems throughout the country are unsustainable and there has been much said and written about “pension reform.” But many of our state-elected representatives are hard-pressed to do anything regarding pension reform because of the friction it would cause between the legislative candidate and the money unions donate to political campaigns.

We are reaching a time when we are seeing more and more career municipal employees retiring (Baby Boomers). It would seem logical that these retirees’ jobs would need to be filled just to maintain the same level of service to its citizens. But, municipalities are being faced with paying for two people (one employee from salary and future pension and one retiree from pension) to do the same job. As a result of the mass loss of career employees, the institutional knowledge and experience they have gained over their careers is also gone. We are seeing the level of effective productivity decrease due to the lack of institutional experience, such that it could take one and a half people to replace one retiring employee. We are seeing more and more government laws, regulations and mandates that mean those working in the public sector need to have very specialized skill requirements. More and more municipalities are being forced into hiring back on contract basis, those employees who have retired because of those complexities of government operation and the lack of available experience in the talent pool.

The California Rule could be abolished by a State Constitutional Amendment which would require a ballot initiative. But such an initiative could be judicially shot down because of a law being established impairing contract obligations. Such an initiative could fix future employee salaries and pensions but we would not see any relief for 10 to 15 years. Because of past fiscal management beliefs that the economic boom would continue “forever,” the dot-com bust of 2000 and the greatest recession since the Great Depression that started in 2008 brought us back to reality.

So what do we do in the meantime? I full expect that our state Legislature will continue to “kick the can” down the road as they have done so well in the past. Yet, I am concerned less about our current plight and more about our children and grandchildren and with the future financial obligations we will be leaving to them. The impending financial dilemma has got to be addressed with near-term solutions rather than continuing to let it grow to a point where it is unrepairable — which it may have already reached that point.

I remain puzzled that salaries and pensions in the private sector can go up and down with economic good times and recessions while salaries in the public sector might begrudgingly stay the same or go up — but rarely go down. There are laws to protect public pensions, so where are the laws that protect private pensions?

Art Kiesel is the vice mayor of the Foster City Council. He can be reached at akiesel@fostercity.org or 573-7359.

 

 

Tags: pension, would, employees, california, public, pensions,


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