Pension Crisis

Cities Facing Fiscal Mess Plead With CalPERS as Pensions Consume Budgets

Local California officials warn of a looming disaster.

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If you ask the union-controlled California Public Employees' Retirement System about the state's looming pension crisis, you're likely to get this answer: What pension crisis?

But the story was much different at CalPERS' own Finance and Administration Committee meeting held Sept. 19. City officials from across California warned CalPERS board members about the dire fiscal situation their cities face because the pension debt is consuming larger portions of local budgets. The energetic discussion included 18 speakers, many of them local officials who trekked to Sacramento.

"In Hayward, 68 percent of our unfunded pension cost is retiree benefits," said Hayward City Council member Sara Lamnin, who pointed out that "this means the promises of the past weren't paid for, frankly." Hayward's future is really troubling. She said that "over the next three fiscal years, the city of Hayward's revenue is projected to grow 1.4 percent, but our cost for PERS is going to go up 30.5 percent." Lamnin wasn't asking for someone to rescue Hayward. Officials just want to know how bad the damage will be. "We ask you for data," she said.

Oroville Finance Director Ruth Wright said her Butte County city has been forced to cut its workforce by a third and negotiated cuts in police salaries by 10 percent. Oroville expects its cash flow to be gone in three to four years, she said. "We've been saying the 'bankruptcy' word."

These city officials were there to support state Sen. John Moorlach (R-Costa Mesa), who sent a letter to the CalPERS board of administration requesting detailed answers to two seemingly straightforward actuarial questions.

First, Moorlach wanted to know the financial effect of moving employees from "their current tiers to a PEPRA tier on a going-forward basis." That would mean providing them with the slightly-less generous pensions offered after the 2013 reforms went into effect. Moorlach also wanted the pension fund to study the cost savings if cost-of-living adjustments to retirees were temporarily suspended until the fund's liabilities are stabilized. No one is proposing any cuts, but Moorlach was just seeking cost comparison data.

"Cities all across the state of California are gravely concerned about the rising costs of their annual retirement contributions and the growing size of their unfunded actuarial liability," said Bruce Channing, the city manager for Laguna Hills in Orange County, and chairman of the League of California Cities' pension-services committee.

He warned of "severe hardship" and cutbacks in staff in many cities if the problem isn't addressed – and reminded CalPERS officials that "saying we have to invest our way out of this really is not the answer."

The League's Dane Hutchings noted a shocking statistic: "I have members who by all accounts are considered financially healthy cities" but their financial models "suggest that by fiscal year '27-'28 as much as 94 cents of every current dollar of payroll will be allocated to CalPERS contributions." That's without accounting for new hires or raises in the coming decade.

Lodi City Manager Steve Schwabauer said his city's pension costs are expected to double by 2022, which is the equivalent of a fire station and "all of my parks and recreation and all of my library." These are ominous warnings from actual city officials.

Given CalPERS' touting of PEPRA as a key reason that the state is "bending the cost curve" regarding pension liabilities, Moorlach's first request should have been a no-brainer. Why not figure out other PEPRA-related savings possibilities? The second question would make sense, too, if the pension fund were interested in exploring ways to protect cities from potential insolvency rather than simply protecting public employees from any pain.

As expected, CalPERS gave the final say to union officials, who feared that the data would be used to justify lower benefits.

"Yes, it's painful for employers to deal with those rising costs," said Jai Sookprasert, a California School Employees Association lobbyist. "It's doubly more painful for the employees. What part of negotiate, talk to your employees is not clear? … Really, data? This is just data? … Is it data or conjectures?"

So, learning actuarially sound information about what different benefit levels might do to unfunded liabilities is now just a conjecture, at least in the view of some union officials. Apparently, it's better for local officials not to know what different options will mean for their budgets. They should just pay up and quit their complaining.

The CalPERS board fell in line and didn't even vote on the request, meaning that Moorlach's proposal will not be heeded.

In 1999, CalPERS promised that the legislature's proposal that would lead to 50-percent retroactive pension increases for public-safety officials across the state wouldn't cost taxpayers "a dime" because investment returns would make up the difference. The fund was laughably wrong, and their efforts led to the current problems cities across the state are facing.

Now CalPERS and its union allies typically claim that there's no pension crisis and that Democrat Gov. Jerry Brown's modest PEPRA reform will right the ship. Apparently, there's no need to worry about what these hard-pressed city officials are saying. But what will they say 10 to 15 years from now, as pension costs gobble up majorities of local budgets and services will be slashed and burned?

For now, denial is the easiest course. CalPERS had a good year with investment returns of 11.2 percent. Likewise, the Democratic-controlled state Legislature totally ignored the pension liabilities and the arguably even-larger problem surrounding soaring retiree-medical costs during its recently concluded legislative session. But the problems only are going to get worse, and other cities are going to hit the fiscal wall.

"The unions will say it wasn't our fault. We didn't vote for it. You guys voted for it," said Sen. Moorlach in an interview Monday. He was shocked by their audacity. No doubt, they'll also be blaming Wall Street and stingy California taxpayers. But by then the state and cities could be in full crisis mode. Will CalPERS still be in denial if dozens of cities are using about the "b" word?

This column was first published by the California Policy Center.

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49 responses to “Cities Facing Fiscal Mess Plead With CalPERS as Pensions Consume Budgets

  1. CalPERS should be renamed CalOstrich.

    1. Try “Socialized California Public Employees’ Retirement System”.

        1. Somebody get a pension vacation for this man!

          Oh, wait, sorry, that’s not a libertarian class perk. Uhh… Ahh, here we are:

          A tax break and a bag of crystal meth for this man!

          1. I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life.

            This is what I do… http://www.netcash10.com

    2. Why not Lannister? That’d be a nice change.

      1. “Lethargic Apathetic Nannies Ninnies & Imperious Sycophants’ Taxation & Extortion-based Retirement”?

        1. “Lannisters always pay their debts”.

          1. Ah, so you were being hopeful, then. Sorry, it’s been so long since I felt that emotion it never occurred to me.

  2. when they secede it wont matter anymore…

    1. Which is why the Claexit idiocy never gave me much hope. It won’t happen until the rest of the country has proven that we will let California sink into its sea of red ink. And that won’t happen either, dammit.

      1. “Which is why the Claexit idiocy never gave me much hope.”

        Big headlines last week:
        ‘New Healthcare Plan Will Cost CA $13Bn!’
        What it really means is: ‘new healthcare plan will save taxpayers in 49 other states $13Bn.’

    2. Keep California. Expel all the Californians. Let them leave this life with nothing.

      1. “Expel them” to Where???
        Unless they’re all shipped to some comfortable location like Venezuela, they’ll just try to bring their infection to other States in the US…

        Don’t want that!

  3. The Union will continue to be obstinate until somebody seriously takes the tack; “We at this table didn’t make these commitments, and you are no help. Unless you start BEING some help, we are going to repudiate the pensions and outlaw your Union in our jurisdiction.”

    1. CalPERS is NOT the “Union”, there are at minimum 100 unions whose member’s retirement funds are paid into CalPERS. (CalPERS stands for Cal(fornia) P(ublic) E(mployees) R9etirement) S(ystem))

      CalPERS is the one that has refused to deal with reality since at least(and probably long before) 2009. They have been claiming that they are making 7 to 10% on investment incomes since 2009 when the reality is they aren’t even making half that.

      The “Union”, nor the cities are the problem, CalPERS is. Understand the problem first.

      1. “Yes, it’s painful for employers to deal with those rising costs,” said Jai Sookprasert, a California School Employees Association lobbyist. “It’s doubly more painful for the employees. What part of negotiate, talk to your employees is not clear? ? Really, data? This is just data? ? Is it data or conjectures?”

        Yeah. Unions aren’t a part of the problem.

        1. What incentive would a public sector Union possibly have to do anything ‘reasonable’ when they are government employees, you know, that thing that literally can not go out of business?

          It’s the perfect setup for a Union, because unlike a for profit business they can’t strangle the life out of a government. Or, at least, if they do they know they’ll get bailed out and business with go on as usual for them.

          It’s a huge conflict of interest to have public sector unions, period. They must be crushed.

          1. ^ This.

      2. Yeah, who does CalPERS think they are, the Harvard Endowment Fund (which last time I looked was generating a return of 8.7%)? Of course, Harvard’s fund is being run by financial experts(?), and not a bunch of political/union hacks with their hands in the till.

    2. Those at the table may not have personally made those commitments, but they are the current agents of the entity who did. That’s not a valid argument.

      1. Neither is FYTW, but that doesn’t stop the government from using it when it suits their purposes.

  4. Another reason for municipalities to outsource every possible job function they possibly can.

  5. Will CalPERS still be in denial if dozens of cities are using about the “b” word?

    Is “using about” some kind of California idiom?

    1. “California idiom” is not that common of a phrase; “California idiot” is more often heard….

  6. Getting a COLA when you’re retired and on a state pension is ridiculous–the COLA was never paid for. That’s a definite scam.

    1. Quite true – unpaid insurance is wrong.

      On the other hand, letting politicos inflate their way out of debt is also a fraud.

  7. A major part of why their costs are going up is they’ve failed in the past to fully fund their pension obligations.

    It’s not unlike someone agreeing to buy a new car and deciding a couple years in they don’t want to keep paying on the loan…

    1. Never forget: CALPERS told everyone that enhanced pensions wouldn’t cost anything – investment earnings will pay for it all. That was a damned lie from word number one, but only one side (the taxpayers) has to pay for that lie. What a load of dishonest garbage. And the unions can say “oops, looks like that was incorrect. No choice but to pay up.” Justice would be served by every fucking city in the state declaring bankruptcy.

      1. Who cares what CALPERS “told” people? There’s this thing called the “government,” that is made up of the “governor,” the “legislators,” and various and sundry county and city mayors, councilmen, and so forth. They all have their own obligations to do their own due diligence on all public matters for which they are responsible. If they fuck up, too bad, and too bad for the people who voted for them. They all have to follow the law, not contrive ways to weasel out of it, just because they don’t want to pay their taxes.

        1. “They all have to follow the law, not contrive ways to weasel out of it, just because they don’t want to pay their taxes.”

          The most prosperous people, the ones most able to pay the astronomical taxes required to get out of this mess, are also the ones with the most options. They’ll simply move to other jurisdictions with lower taxes and leave the rest behind to fend for themselves. The cities will lose their tax bases and be in worse shape than they are already.

      2. If a private investor promised a client guaranteed returns that wasn’t actually part of the investment product (they’d pay out of pocket if below the guaranteed percentage), they would be fired at the very least.

  8. The communist state of California has a looming disaster? Comrade Moonbeam, it this true?

  9. Let it burn. Public sector workers aren’t sacrosanct.

    1. Contracts and property are sacrosanct. Not paying what you owe is stealing.

      1. contracts run through municipal governments by means of coercion, perks and kickbacks, backscratching, and outright lies are not contracts at all. They are fraud.

        1. Thank you. If the legal representatives of the taxpayers committed the taxpayers to a contract in bad faith, based on fraudulent information, etc., then said contract might be considered invalid. Especially by a bunch of angry taxpayers.

  10. Rome overpromised too. Then it drove taxes so high people fled. We’ve learned nothing in 2000 years.

  11. Uh, no to relief. They used the taxpayers money to buy votes and then kicked the can down the road for funding the pensions. Everyone involved, both politicians and unions, knew this was a scam. They just figured out they wouldn’t be around to see it fail.

  12. It’s all down to the decades of pandering to, and blackmail by, tax-cut fetishizers on the right. Not paying governmental employees what was promised to them is stealing, and if anyone should shout an instant “huzzah” of assent to the argument that it would be immoral for the government to steal from its citizens, it’s the readers of Reason. Cutting services is not the only answer. The other answer is, for the people of the affected jurisdictions to pay the taxes necessary to honor the contracts that they, through their elected representatives, entered into and are responsible for. That’s pretty simple.

    1. Nope, it’s really not pretty simple. However, it would be as simple as you claim if public sector employees were not allowed to vote.

    2. “the contracts that they, through their elected representatives, entered into”

      I suppose we libertarians should be held responsible for drug prohibition and police shootings too then. Seeing it as it was our elected representatives that created those things.

    3. any employer has the right to make changes in the pay structure when circumstances warrant. Since when does anyone take a position with any guarantee of a given wage indefinitely into the future? If you think you’re worth more than your present salary, put in yur notice and take a position elsewhere with pay more to your liking. Cant find a better position? Then shut up and be quiet and maybe no one will notice you and you will get to stay on. Since when does taking a job in a government agency mean the state then becomes YOUR servant for the rest of your days here?
      Its either that or the cities will go broke and EVERYONE will then suffer.

  13. We must be blunt with the unions and the blue-model politicos.

    As Tom Stoppard said: “You’ve unmade your bed, now lie about it.”

  14. The Piper will eventually be paid.

  15. The Piper will eventually be paid.

  16. Not to worry, Californians are progressives so they should be willing be willing to pay any price in higher taxes to see that their loyal public servants are taken care of.

  17. It’s not like they weren’t warned repeatedly about what they were doing.
    They’ve made their bed, and now they’ll burn in it as many of the more productive (and tax-paying residents/citizens) have encamped for other, more reasonable locales in states not CA.

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