Many local governments are in an economic tailspin. The recession slashed sales taxes and the collapsing housing market drastically lowered property taxes. Those losses of revenue translate into fewer cops, shuttered mental health clinics, neglected parks and dangerously high caseloads for social workers who watch over vulnerable children.
As city and county layoffs mount and services shrink, pension payouts soar, consuming a grossly disproportionate share of local government budgets. One official aptly described the phenomenon. “My concern,” he told The Bee, “is that county government is becoming a pension provider that provides government services on the side.”
But it’s not just counties. Consider the city of Roseville. As Phillip Reese and other McClatchy reporters documented in Sunday’s Bee, the city has had to lay off 150 workers – one-tenth of its work force – to balance its budget in the face of falling revenue. Still Roseville must pay $18 million into its employee pension fund this year, 12 percent more than it paid two years ago and more than it pays for all its park and recreation programs combined. Even with the contribution hike, the city’s unfunded pension liability – the difference in what the city’s pension system can pay and what it needs to cover its future obligations – stands at $111 million.
Not just the stock market
The tumbling stock market explains part of the problem. Local governments must backfill for massive market losses.
But huge pay hikes and retirement benefit boosts are equally, if not more, to blame. Between 2000 and 2008 the average pay for all local government employees in California shot up a staggering 40 percent, from $46,073 to $64,284.
Again, Roseville stands out. In 2006, the City Council there made headlines when it approved a contract that boosted its city manager’s pay 16 percent, to $241,000, a record in the region at that time.
On top of generous pay raises, the Legislature approved and Gov. Gray Davis signed hefty public pension benefit increases.
Prodded by the state, most local governments approved “3 percent at age 50” pension formulas for safety workers, police and firefighters. Pensions are calculated by multiplying 3 percent times their years of service times their highest year’s pay. After 30 years on the job most cops and firefighters earn 90 percent of pay in retirement.
In jurisdictions like Sacramento County that are governed by the 1937 Retirement Act, sheriff’s deputies can earn 100 percent of pay when they retire. Given that, it’s hardly surprising the $100,000 Pension Club, a list of retired public employee who collect more than $100,000 a year in pensions, is dominated by police and firefighters.
Non-safety local government workers earn generous pensions as well. Most receive 2 percent of their highest year’s salary, times years of service at age 55. But some local governments have been even more generous.
Roseville stands out
Roseville, again, approved a 2.7 percent at 55 formula. After 30 years on the job, a non-safety Roseville employee earning $75,000 a year would collect $67,750 a year in retirement. That same worker in the city of Sacramento, which maintained a 2 percent at 55 formula, would collect a $45,000 annual pension.
High pay, lavish pensions and bad advice from actuaries about what higher pension benefits would cost have left some local governments on the brink of bankruptcy. The city of Vallejo filed for bankruptcy protection two years ago. Other local governments may be contemplating it. An increasing number of elected officials acknowledge that public employee pension costs are unsustainable both financially and politically. The public is being fleeced, forced to pay more for retired government workers while services shrink.
Many local elected leaders are considering pension rollbacks for newly hired workers. But rollbacks by a few cities or counties are not enough.
Pension bloat began in the Legislature and that’s where a rollback to reasonable levels must begin. At minimum, the Legislature should lower pension benefits for all newly hired state and local government workers. If the Legislature does not act, eventually a disgusted public will.