Commentary: Public pension costs hitting home - hard

By Dan Walters |  CalMatters Columnist |  

Stanislaus Consolidated Fire Protection District came into being 14 years ago when four small fire departments serving farms and small towns east of Modesto merged.

The district now flirts with insolvency, a case study in how rapidly growing costs for pensions and other employee benefits are clobbering local governments.

Four years ago, Stanislaus Consolidated had 80 employees, most of them firefighters, and more than $13 million in revenues. However, as budget documents reveal, its expenses, mostly for salaries, were already beginning to outstrip income.

The district’s operational shortfall in 2015-16 was exacerbated by a new expense item, an extra $330,858 bite by the California Public Employees Retirement System, which is anxiously trying to offset its $100 billion in investment losses during the Great Recession and prevent its enormous “unfunded actuarial liability” (UAL) from growing.

Cities and fire districts throughout the state are being hammered particularly hard by CalPERS’ extra levies for UAL because their “public safety” employees — police officers and firefighters — have California’s most generous pension benefits and therefore its highest employer costs.

Even with the extra CalPERS charge in 2015-16, Stanislaus Consolidated’s retirement costs were not overwhelming, about 32% of wages and salaries for the district’s employees. But the UAL squeeze was about to get tighter.

It jumped to $397,981 the next year and $517,834 in 2017-18. The agency’s 2019-20 budget sets aside $842,404 for UAL, contributing to a financial freefall.

The district’s persistent operating deficits caused the small community of Oakdale, located just outside its boundaries, to cancel fire protection contracts worth $3.5 million a year to the district. Oakdale is now served by Modesto’s fire department.

With the loss of revenue from Oakdale, the district was compelled to slash operations, shrinking its staff to just 59. But its retirement costs continued to swell, reaching 46% of payroll this year.

Late last month, the fire district’s chief, Michael Whorton, announced the closure of one fire station, citing a $925,000 operational deficit in the current budget — a number not much higher than the budget’s $842,404 UAL payment.

“We are definitely going to open it back up,” Whorton told the Modesto Bee. “We just have to close it right now because of finances and we will open it again as soon as we can.” However, he could not say when, and if, Station 23 will be reopened.

Residents served by Station 23 are nervous about the cut, the Modesto Bee reported. “That leaves us very vulnerable,” Barbara Heckendorf said. “I don’t know where (the firefighters) are going to be coming from.”

“It’s not something that we want to do,” Whorton said, “but we have to be financially responsible for the department. We just need to get our finances in line.”

That won’t be easy. CalPERS has told the district that its mandatory UAL payment will top $1 million within two years.

Throughout California, local officials have complained loudly about the ever-rising CalPERS assessments, saying they’ll have no choice but to cut services unless local voters are willing to raise taxes.

CalPERS officials, on the other hand, contend that they also have no choice because their investments haven’t fully recovered from the last recession and they must improve their balance sheet to cope with the next downturn.

Meanwhile, CalPERS investment returns continue to fall below expectations, thus widening the gap between its assets and what it needs to cover pension promises.

In rural Stanislaus County, where wildfire is always a threat, it means having fewer fire trucks and fewer firefighters to respond when it hits.

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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