Report paints worrisome picture for Calif. cities

February 21, 2012 7:40:30 PM PST
A Stanford University think tank says unfunded public pensions at the local level are out of control.

The authors of this new study say all two dozen of the pension plans they looked at are underfunded and in trouble. They say it's just a matter of how much trouble.

Joe Nation, Ph.D., of Stanford's Institute for Economic Policy research is sounding an alarm. He's just released a new study on the pension problem.

"I think without question, the biggest financial challenge we have in the state of California, bigger than anything else, nothing is even close to this," said Nation.

The study evaluated the top 24 independent pension systems across California which includes some Bay Area county and city funds. It concludes spending on public employee pensions has grown more than 11 percent a year since 1999, making retirement benefits the fastest growing cost for local governments. The study finds the plans face more than $135.7 billion in unfounded liabilities.

"Instead of earning the money and then awarding it, you award it and then earn it in the public sector side and what happens if you don't earn it, you go to the taxpayers and say you have to pay," said Nation.

Nation says local governments have to cut essential services such as fire, police and libraries just to keep up with growing pension obligations.

The study highlights employee pensions which range from a low in Stanislaus County of $24,179 a year to a high in Los Angeles County of $46,211.

Retired public safety employees - police and firefighters - get more, with average benefits ranging from a low of $48,732 in Fresno County to a high of $90,612 in San Jose.

Stephen Levy with the Center for Continuing Study of the California Economy says many pension plans were based on unrealistic assumptions.

"Because there was a recession, and because there were investment losses, cities have to put more in the pot just to meet the current obligations because the investments didn't make a high rate of return. It's like people's 401ks didn't do very well," said Levy.

The good news is that the improving stock market will have a positive impact on pension funds, but Nation says not enough.

"Right now you have people still saying, 'Well there's not really a problem.' By any interpretation, even the best scenarios possible, there is a big problem," said Nation.

The pension funding gap is sparking debate up and down this state. Many local governments want employee groups to pitch in more in the short term to their pension fund and in the long term are looking to raise the retirement age and reduce benefits for new employees.


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