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If the claims of the League of California Cities is any indication, government officials at the county and local level will increasingly have to choose between providing services to the residents of their communities, or really generous pensions to the retired and retiring employees of their governments.
Adam Aston of the Sacramento Bee describes the dilemma that government officials at the state and local level within California will face within just a matter of years.
Most California cities expect their spending on public employee pensions to climb by at least 50 percent over the next seven years, restricting their ability to fund basic services like public safety and parks, according to a study from their lobbying organization.
The report escalates the League of California Cities’ appeal for more flexibility in negotiating pension obligations. Almost all of California’s cities belong to the $360 billion California Public Employees’ Retirement System, and some cities over the past year have raised increasingly loud complaints that fee hikes from the pension fund are “crowding out” other spending priorities.
The report, which was released Thursday, warns that pension costs are becoming “unsustainable.”
“The impact of pension costs are becoming such a large element of city costs that it is inevitably going to cause the reduction of services somewhere,” said Dan Keen, a retired Vallejo city manager.
If the city of Vallejo sounds familiar, it is because the city has had direct experience with unsustainable expenses – it declared bankruptcy back in 2008 because of a “combination of generous public-safety salaries, declining property values and fiscal mismanagement”, where Dan Keen spent a lot of his time in office working to keep the city’s financial situation on a positive track after it emerged from bankruptcy in 2011.
How big is the public employee pension issue in California? Long-time Los Angeles Times political columnist George Skelton cited figures about the magnitude of the fiscal problems that will be faced by governments at all levels throughout California provided by former California assemblyman Joe Nation, who is currently a public policy professor at Stanford University.
The state’s two biggest public pension systems are badly underfunded. They’re also the largest and second-largest public pension funds in the country. They’re the California Public Employees’ Retirement System, or CalPERS, and the teachers’ pension fund, CalSTRS.
CalPERS has unfunded liabilities — benefits promised compared with anticipated funding — of $136 billion, Nation says. For CalSTRS, the projected red ink is $87 billion. That’s based on 2016 data, the latest available.
If you total up the unfunded liabilities of all state and local public pension systems in California, the projected debt comes to around $333 billion, Nation says. But that’s a conservative figure based on official reports. It could be up over $1 trillion.
“No one believes the official numbers are correct except maybe people within the system itself,” Nation says. “They all use fuzzy math and play games with their debt.”
Just using the official numbers, Nation says, the unfunded liability amounts to an average of $26,000 per household — fourth worst in the country. No. 1 is Connecticut at $38,000, followed by Alaska and Hawaii.
In California, the pension systems are 69% funded, meaning they can project enough money to pay 69% of what’s promised.
“It’s clear pension costs are going to overtake so much else in the budget,” Nation continues. “We have these benefits that are not sustainable.”
No wonder that outgoing-Governor Jerry Brown recently indicated that when the next recession comes to California, the state’s public employee pensions will be in for a major haircut. It’s a shame that hardly any of his potential replacements have been willing to address the source of what is very likely to become the state’s most significant fiscal problem in the next several years. It really shouldn’t be that hard of a choice to make between the interests of bureaucrats and those of the people of the communities they serve.