Are big pensions to blame for city budget woes?

((ABC7))
December 4, 2009 7:20:27 PM PST
Cities around the Bay Area are feeling the pinch of a tight economy, slashing budgets by hundreds of millions of dollars in just the past year. And the deficits just keep growing. Some blame the generous pensions given to public employees when they retire, a burden that's skyrocketing for local governments during this recession.

"It's basically been a perfect storm," says Contra Costa Supervisor John Gioia, the rare Bay Area politician willing to talk openly about the public pension disaster headed toward many counties and cities. "Our pension costs are rising and are unsustainable. In 2000, we spent about $70 million a year in pension costs; this year $200 million and we expect in five years it will be close to $300 million."

"It's going to get worse and worse as you go along," says Kris Hunt, executive director of the Contra Costa Taxpayers' Association. "Virtually no one had set aside any money to pay for these long-term promises to people."

Hunt's group found no fewer than 432 public retirees in Contra Costa County getting guaranteed life-time pensions of more than $100,000 per year. At the top of the list are ex-public safety employees, like a retired San Ramon Valley Fire District chief collecting a pension of nearly $300,000 per year.

Those generous pensions could be supported when the economy was booming and when pension systems, like CalPERS, flourished on their investments in stocks and real estate. But not now.

"Most of the increases right now are due to the stock market crash because it is the employer, in this case the county's responsibility, to make up the difference," says Gioia.

Some say public employees are being unfairly singled out, compared with their private counterparts.

"You really have to be careful when you are comparing the public and private sector," says Keith Bender, a professor at the University of Wisconsin-Milwaukee who studies public versus private compensation. "By and large, particularly state and local workers are earning about what private sector workers earn in terms of average wages, maybe slightly higher in terms of benefits, but it's pretty close to comparability."

According to California governor's office, the average civil servant with 30 years in state government who made $70,000 per year can retire at 55 with a guaranteed annual pension of $42,000.

Employees in high-risk jobs, like firefighters and police, get up to 90 percent of their salaries if they retire at age 50.

"There are markets that the private sector just won't move into," says Michael Picker with Californians for Health Care and Retirement.

Picker says any perceived perks for public employees are offset by lower pay and less desirable jobs, like working as a sewage treatment operator.

"There's a premium for the employer to want to keep them in that job and preserve the knowledge base rather than the expense of continual retraining," says Picker.

The reality is the public pensions granted in better times could quickly cripple some Bay Area communities already facing hundreds of millions of dollars in program cuts and job losses due to declining state and local revenues.

In Contra Costa County, a recent grand jury report found that cities and the county have been overly generous in their retiree benefits, so much so, that the burden could push some of them quickly toward bankruptcy.

One Bay Area city, Vallejo, is already there, declaring bankruptcy in May of 2008.

"What pushed it over the edge was labor costs," says Ivan Osorio with the Washington D.C. Liberatarian think-tank, The Cato Institute, which did a case study on Vallejo.

Osorio says agreements made with unions in profitable years broke Vallejo in the lean years. After the bankruptcy, Vallejo's unions did agree to renegotiate their contracts.

It's that kind of thing many think needs to happen in other Bay Area communities, long before they reach the brink of bankruptcy.

"Public employees and government need to do this together because if we don't, what we will see are more extreme measures to cut pension benefits," says Gioia.

California taxpayer groups are already working to put a measure on next year's statewide ballot that would limit future amounts that could be paid out for public pensions.

Produced by Ken Miguel


Load Comments