One of the three main goals of the League of California Cities for the 2012 year is “Sustainable and Secure Public Employee Pensions and Benefits.” To that end, the League has been keeping very close tabs on the progress of Pension Reform Legislation and the Governor’s 12-Point Pension Reform Plan.
The State Legislature formed a committee that includes three members from the State Assembly and three members from the State Senate. The committee is charged with addressing pension reform issues and most recently focusing on the County Employees Retirement Law of 1937 (California Government Code Section 31450) and referred to as the “1937 Act.” Each county was allowed to implement its own modifications under the 1937 Act, which is making a unified plan more difficult to achieve. However, a draft of the committee’s report was sent to the Governor‘s office for review, drawing several objections. No action was taken on the proposal before the summer recess that started July 6. Further work of reconciling the differences is expected to be considered when the legislature returns in August.
The Governor’s proposed 12-Point Plan is attempting to create a uniform pension plan throughout the State. The plan highlights some major talking points but details have not been forthcoming. The Governor wants to see a hybrid plan that includes a reduced benefit plan, social security participation, and a 401k defined contribution plan along with having the age for retirement eligibility to be aligned with Social Security.
Many municipalities have a pension liability where the future costs of retiree benefits exceed the dollars currently set aside for those benefits. To make up this difference, an additional appropriation is made in each year’s budget. Foster City has over $21 million in unfunded pension liabilities and our reserve at the end of 2012-13 fiscal year stands at just over $13 million. While talking with elected officials from other cities, it is abundantly clear that there are other cities that find themselves in a much worse economic position than we find ourselves in Foster City.
To get to this point, municipalities competed with the private sector as well as other municipalities for good talented people offering ever-increasing salaries and benefits. Cites would compete with other cities, the County, or the State to tap from the talent pool. This seemed to work well while we were experiencing good economic times. Obviously we are faced with challenging economic times but the salaries and benefits have continued to remain high. Foster City’s salaries and benefits account for 77% of the total expenditures in the 2012-2013 General Fund budget, which does not include any appropriation for addressing any future pension costs.
We are in the midst of the “baby-boomer” retirements and we should expect to see a significant turnover rate with many of the experienced employees. Aside from the several who have retired during the past year, there are 5 more who have scheduled their retirements to take affect between now and the end of the 2012.
There seems to be little disagreement that the current pension system is unsustainable. Many municipalities are undergoing economic challenges resulting in part from the ever-growing pension liability. We know of four cities that are in the various stages of Bankruptcy: Vallejo, Stockton, Mammoth Lakes, and San Bernardino and rumor has it that there are others to come. It is becoming difficult to encourage public confidence in government when we continue to be faced with a weak economic climate and economic instability of municipalities.
Last year Foster City made some headway by reducing the retirement requirements for police and fire for all new hires from 3% at 50 years of age to 2% at 50. This agreement will help ease the financial requirement of the City in the future when these new hires retire. We in Foster City are addressing the pension issue that will reap benefits in the longer term, but our sphere of influence is limited.
The State must take the lead position in pension reform no matter how unpopular. We seem to spend a great deal of effort on environmental issues and how we need to protect the environment for “our children.” But we need to be ever mindful that having a healthy environment will be meaningless when our children will be unable to afford to live in it.
Pension reform is a top issue to nearly every city in the State and we should address the issue sooner rather than later even though it may be unpopular.
I would appreciate your comments on this and other issues by emailing me at firstname.lastname@example.org or 650-573-7359.