There’s a quiet crisis underway, and the sooner we recognize it the better. The state’s public employee retirement system, which includes most city workers, is not going to be able to cover all its pension obligations. As more workers retire, member cities will have to raise taxes or cut services — or both — to pay the difference.
The League of California Cities reported this month that most member cities expect pension costs to jump by at least 50 percent by 2024-25. Pension payments — now about 11 percent of most city general fund budgets — will eat up about 16 percent by then. That doesn’t include higher retiree health care costs. We could see some cities going bankrupt, as Stockton and San Bernardino did in 2012.
Modesto expects pension costs to peak in 2028-29 at $54.6 million. Fortunately, the city is already considering various options. Unfortunately, there are no good ones.
The league is telling cities to consider local sales tax measures and to negotiate with labor unions to force current employees to pay more into pension plans. Modesto is considering a special fund or a one-time payment to CalPERS.
Others are counting on a court ruling to reduce pension costs for those still working. Gov. Jerry Brown wants the state Supreme Court to end the “California rule,” which prevents state and local governments from reducing pension benefits for current workers without compensating them in other ways.
Unions and management retirees will fight any attempt to cut benefits. And it will be difficult to tell people who have based retirement plans on the “certainty” of a pension that they might have to wait. But it’s also difficult to ask taxpayers to be sympathetic after learning that CalPERS pays more than 30 retirees in excess of $300,000 a year, with two topping $500,000 each year, according to Transparentccalifornia.com.
Yes, it’s easy to blame public-employee unions. In 1999, they convinced Gov. Gray Davis and the Legislature that retirement benefits for public safety employees could be expanded — and retirement age reduced — at no cost. How? By counting on rising pension fund investment returns to cover it all. Right behind the unions came the professional associations made up of managers, demanding (and getting) the same unrealistic deals.
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Despite a return 11.2 percent last year, returns were often much lower — like the 0.6 in 2016. Far more frequently, investment returns failed to meet CalPERS’ outsized expectations, leaving a hole on balance sheets. Local governments are required to fill those funding holes for their employees.
Jerry Brown saw it coming in 2012 and enacted reforms that lowered pension formulas and required employees to pay more into their retirement accounts. But the changes apply only to those hired after Dec. 31, 2012, so real savings won’t kick in for another 20 years - and only if a union-backed lawsuit doesn’t kill them.
It also helps that in 2016 CalPERS lowered its expected return rates to more realistic figures. But that doesn’t help the 451 California cities that are looking up from the bottom of those pension holes.
Bolting CalPERS won’t work. The city of Loyalton tried in 2013, but was assessed a $1.6 million exit fee — more than its annual budget.
Many counties are at least a little better off. Stanislaus, Merced and San Joaquin are among 20 whose retirement programs are not tied to CalPERS.
The worst is yet to come. As the federal government goes deeper into debt, a downturn is inevitable. When that happens, what will cities do? They’ll cut. Deeply.
Taxpayers have to be just as adamant as public union employees. Not one more red cent in taxes to shore up pensions. This is not a new problem and has only become worse with time due to the refusal of public unions to realize of care about the problem. The cozy relationship between the unions and the Democrats that govern our cities and state is going to come down on us like a ton of bricks. Vote No on any new taxes for the pensions of public union employees. Certainly end the archaic defined benefit retirement benefits and get the workers on a defined contribution system that ends the responsibility to them the day they quit or retire.
Chris, you must have a short memory. Governor Arnold S cut a lucrative deal with the prison guards and CHP unions in exchange for their endorsement. And let's not forget the best Governor California ever had, Pete Wilson. The energy crisis was created by him after duping us into de-regulating the energy business, leading to Enron and a $9 billion dollar debt. In order to pay for that debt, he attempted to take $8 billion from CALPERS (you think it has problems now?!!) to cover his fraud. Fortunately, CALPERS sued and blocked the theft of funds. Unfortunately, the City of San Diego's pension fund wasn't so lucky. Then San Diego Mayor Wilson took money from their pension fund to finance his projects and the complete renovation of Qualcomm Stadium so the billionaire owner from Stockton wouldn't move the team to LA. The money was never re-paid and the pension fund is a complete mess. The Chargers moved anyhow and left San Diego holding the bag, due to a loophole Wilson gave them. Remember when we had to borrow $8 billion to pay off the Wilson energy debt and pay it off via a bond issue, which we have since done. The pension fund is a mess, but meddling by 3 Governors and of course their huge investment in the housing mortgage fraud collapse contributed to the mess they are in now, way more so then the change from 3 at 55 to 3 at 30 did.
Jerry Brown a savior? Really, he is the one who caused this in the first 8 years he was in office. Mandatory union membership. How the heck can some person get six figures during retirement when I never made six when I worked? Kalifornia, land of the lame and easily fooled.
Just cut cut the city and county contribution to 6.2 percent on the first $128,400 of each employees pay and whatever benefit that will pay is what should be paid. I am totally for equal pay for equal work. New employees get a much lower benefit and have to work longer, so should the older. Why not have some of the fire fighters start doing inspections and code enforcement at age 55 instead of retiring. Events like the Ghost Ship fire could be prevented, by having understaffed enforcement positions filled, instead of having qualified people sitting on the sideline to comply with retirement rules. We should also assess a fee to retirees who retire and move out of state to avoid tax. Fee should be equal to the amount of tax the ordinary retiree would pay if they remained in California. Cities and Counties are sending much need funds out of our community and state, leaving a bigger cost burden for those people and business who stay.
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(5) comments
Taxpayers have to be just as adamant as public union employees. Not one more red cent in taxes to shore up pensions. This is not a new problem and has only become worse with time due to the refusal of public unions to realize of care about the problem. The cozy relationship between the unions and the Democrats that govern our cities and state is going to come down on us like a ton of bricks. Vote No on any new taxes for the pensions of public union employees. Certainly end the archaic defined benefit retirement benefits and get the workers on a defined contribution system that ends the responsibility to them the day they quit or retire.
Chris, you must have a short memory. Governor Arnold S cut a lucrative deal with the prison guards and CHP unions in exchange for their endorsement. And let's not forget the best Governor California ever had, Pete Wilson. The energy crisis was created by him after duping us into de-regulating the energy business, leading to Enron and a $9 billion dollar debt. In order to pay for that debt, he attempted to take $8 billion from CALPERS (you think it has problems now?!!) to cover his fraud. Fortunately, CALPERS sued and blocked the theft of funds. Unfortunately, the City of San Diego's pension fund wasn't so lucky. Then San Diego Mayor Wilson took money from their pension fund to finance his projects and the complete renovation of Qualcomm Stadium so the billionaire owner from Stockton wouldn't move the team to LA. The money was never re-paid and the pension fund is a complete mess. The Chargers moved anyhow and left San Diego holding the bag, due to a loophole Wilson gave them. Remember when we had to borrow $8 billion to pay off the Wilson energy debt and pay it off via a bond issue, which we have since done. The pension fund is a mess, but meddling by 3 Governors and of course their huge investment in the housing mortgage fraud collapse contributed to the mess they are in now, way more so then the change from 3 at 55 to 3 at 30 did.
Jerry Brown a savior? Really, he is the one who caused this in the first 8 years he was in office. Mandatory union membership. How the heck can some person get six figures during retirement when I never made six when I worked? Kalifornia, land of the lame and easily fooled.
Just cut cut the city and county contribution to 6.2 percent on the first $128,400 of each employees pay and whatever benefit that will pay is what should be paid. I am totally for equal pay for equal work. New employees get a much lower benefit and have to work longer, so should the older. Why not have some of the fire fighters start doing inspections and code enforcement at age 55 instead of retiring. Events like the Ghost Ship fire could be prevented, by having understaffed enforcement positions filled, instead of having qualified people sitting on the sideline to comply with retirement rules. We should also assess a fee to retirees who retire and move out of state to avoid tax. Fee should be equal to the amount of tax the ordinary retiree would pay if they remained in California. Cities and Counties are sending much need funds out of our community and state, leaving a bigger cost burden for those people and business who stay.
Well said Hockeyczar. Thank you.
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