Last month I wrote about Pension Reform and the Governor’s 12-Point plan toward achieving some level of reform. The Legislature has seemingly been reluctant to address the issue until this past week. Quite frankly, I expected Sacramento to pass on taking any action on Pension Reform until at least after the November elections. However, on Tuesday, August 28, the State announced legislation (AB 340) concerning perhaps one of the most important issues facing the financial health of municipalities – Pension reform.
The process for this legislation is shaping up to be much like other controversial topics such as the State Budget and Redevelopment. The State Legislature has embraced last-minute introduction of controversial legislation as part of their methodology by allowing very little time to analyze the merits of such legislation. It does seem that the people for whom our State elected officials are supposed to represent are not well served by the middle-of-the-night tactics with the hasty process on such important long-term issues.
The last budget, which contained over 700 pages, was presented and passed in less than a week just so our Legislators could get paid, as dictated by Prop 25. My experience has told me that decisions made in haste have seldom worked out in the long run. The current Pension Reform Package was presented on Tuesday and both Houses of the Legislature are expected to read, digest, gather input from interested parties, and form a well- researched decision by Friday. Along with the Pension reform legislation are other proposed bills that the Legislature must consider in the hopes of speeding them through the process by the August 31st recess. They are faced with many bills to consider without really knowing either their content or their long-term ramifications.
California municipalities are drowning under the financial burden of unsustainable pension and I do not believe that hastily decided reform is in their best interest nor is it in the best interest of its citizens. We in Foster City have a $21 million pension liability and with only $13 million by the end of this fiscal year, that money will have to come from somewhere – some current and mostly future Foster City taxpayers. Our salaries and related benefits expense is approximately 77% of the General Fund operating budget and increasing each year.
What appears to be the main theme to the Pension Reform Package is placed upon future employees to the system, those hired after January 1, 2013. Although the proposed legislation should have long-term financial benefits to municipalities, the short-term issues are being ignored. Those hired after January 1, 2013 will not be the ones drawing pensions for at least 15 years or more. So what is being done to address the funds to pay those retiring during the next 10 years? Must we live with the continuing drain on the unsustainable pension system for another 5, 10, or more years? Where are the funds going to come from to pay for these unfunded pensions? More than likely it will come from our pocketbooks in the form of increased taxes or reduced services or a combination of both.
The Governor has stated this Pension reform legislation will make fundamental changes that rein in costs. But those cost savings he is talking about will not be seen for at least 15 years. Very little is being done to address the near-term pension problem. Because of many decades of court rulings concerning public employee retirements and benefits, little has been done. What is it going to take to address the short-term pension issue – more municipalities filing for protection under bankruptcy laws?
I do applaud Sacramento for at least addressing the long awaited and controversial pension reform legislation in this election season. Because I am writing this on the Wednesday before the Friday, August 31 deadline, I am unable to predict the outcome of the legislative votes on Friday, but I will be watching and hoping. The economy is not roaring back and pensions are out-of-control especially with the increased retirements from the baby-boomers.
I have always been someone with a “can-do” look on life. If someone sees an outcome other than a pending “train-wreck” in the financial future of municipalities, please assist me with seeing it.
I would appreciate your comments on this and other issues by emailing me at email@example.com or 650-573-7359.
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