Commentary: Bait and switch on California public employee pensions
https://www.elkgrovenews.net/2019/12/commentary-bait-and-switch-on-public-pensions.html
By Dan Walters, CalMatters Columnist |
Local
officials, particularly those in California’s 400-plus cities, have been
complaining loudly in recent years about pension costs, raising the specter of insolvency
if they continue their rapid increase.
Last year,
the League of California Cities issued
a report declaring that “pension costs will dramatically increase to
unsustainable levels.”
The
California Public Employees Retirement System (CalPERS) confirms that
projection in a
new report.
The report
reveals that mandatory “employer contributions,” including those from the state
and school districts, as well as local governments, rose from $12 billion in
2016-17 to $20 billion a year later.
It also
warns that the payments will continue to rise well into the next decade as the
giant trust fund tries to recover from dramatic investment losses in the Great
Recession, adjusts to lower earnings projections and handles a surge of baby
boomer generation retirees claiming benefits.
“The
greatest risk to the system continues to be the ability of employers to make
their required contributions,” the new report declares, adding, “It is
difficult to assess just how much strain current contribution levels are
putting on employers. However, evidence such as collections activities,
requests for extensions to amortization schedules and information regarding
termination procedures indicate that some public agencies are under significant
strain.”
Pension
costs for “safety employees,” police officers and firefighters mostly, are
rising especially fast. They now average about 50% of payroll and are projected
in the new report to top 55% by the mid-2020s. A few cities are already nearing
or reaching 100%.
However,
as much as they complain about CalPERS forever dunning them, California’s local
officials are largely unwilling to directly ask their voters for more taxes to
pay pension bills.
Hundreds
of local tax increase measures were placed on the ballot last year and hundreds
more are likely to be proposed next year, but almost universally they are
billed as improving popular local services, such as “public safety” or parks.
It’s where
the concept of “fungibility” kicks in. If a city’s voters can be persuaded to
raise their taxes for parks and recreation, for example, it effectively frees
up more money to pay its pension bills without acknowledging that motive.
We saw a
wonderful example of fungibility last year in Sacramento, where voters were
persuaded to raise local sales taxes on the promise of civic improvements by an
amount that closely matched increases in the city’s obligations to CalPERS.
We may be
seeing another in Oakland next year.
The
Oakland City Council is
placing a “parcel tax” — a form of property tax — on the March ballot
to improve parks, recreational and homeless services and stormwater drainage.
The tax, $148 annually per real estate parcel, would generate an estimated $20
million a year.
As it
happens, however, the most
recent CalPERS report on Oakland’s pension obligations reveals that
they will increase from $194 million in 2020-21 to $226 million by 2025-26,
which would more than consume the revenue from the parcel tax.
So why
don’t city officials just own up and publicly acknowledge that pension costs
are driving their budgets into red ink and ask voters for more tax money to
cover them?
They — and
the unions that finance tax increase campaigns — clearly fear that being candid
would backfire. If voters knew they would be paying more taxes to support
pension benefits for city workers that are probably much better than they have
themselves, they might refuse to go along.
Bait and
switch is more politically expedient.
CalMatters
is a public interest journalism venture committed to explaining how
California’s state Capitol works and why it matters. For more stories by Dan
Walters, go to calmatters.org/commentary
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