By Rick Orlov, Staff Writer
Posted: 07/21/2012 06:12:34 PM PDT
Updated: 07/22/2012 12:31:52 AM PDT
While some causes of San Bernardino’s fiscal crisis are unique to that Inland Empire city, at least one poses a growing threat to other municipalities throughout California: pension benefits.
San Bernardino has seen its pension obligations double in the past six years, and they are soon expected to take up about 15 percent of the city’s overall spending.
Similarly, cities and counties throughout California have faced a rising tide of pension expenses in recent years that has eaten up a greater share of annual revenue that could be spent fixing streets and hiring cops.
Much of that is driven by better benefits negotiated with public employee unions over the years – some when the financial markets were providing investment returns that could cover the added expense.
“There’s no doubt that if you offer more generous benefits, you’re digging a deeper financial hole for your city or county,” said Joe Nation, a public policy professor at Stanford and former state assemblyman who co-authored a report on pensions earlier this year.
“If you look across California, the cities and counties and special districts that have offered higher levels of benefits are often the ones who are in more trouble.”
The city of Los Angeles, for example, offers an average annual pension benefit to civilian workers of $46,000 – one of the highest cited in a report from the Stanford Institute for Economic Policy Research. Public safety employees collected on average $61,000.
Just a few years ago, the city was facing a projected $1 billion deficit and the risk of bankruptcy, in part because of rising pension obligations. It has managed to avoid disaster by laying off workers, cutting services and working on ways to reduce retirement benefits.
But some municipal governments, such as Los Angeles County, have so far been able to manage the growing costs without being forced to make severe cuts.
The county offers an average annual pension benefit to public safety workers of more than $81,000, according to the Stanford report. For nonpublic safety employees, the county’s average annual benefit is $37,500.
The county has seen its spending on pensions grow by an average of 9.5 percent per year over the past decade, while L.A. city has seen it grow by 10.1 percent – and L.A. County has one of the lowest pension burdens in the state.
Los Angeles County officials said they have been dealing with the pension issue for more than three decades, when the county first withdrew from the Social Security system to use its own pension funds.
The Los Angeles County Employee Retirement System has assets of more than $40 billion and is the largest county retirement plan in the United States and, last year, received $1.4 billion in contributions from its employee members.
For this year, the county is spending $1.12 billion for its retirement budget, 4.59 percent of the county’s total budget of $24.5 billion.
David Sommers, acting director of public affairs, argued the county’s system is considered one of the most cost-efficient plans in the nation.
“It has been reformed four times since 1977, including four separate benefit rollbacks and increased employee contributions,” Sommers said.
“The state is only now beginning to discuss implementing reforms that the Board of Supervisors started over 30 years ago.”
In the city of Los Angeles, Mayor Antonio Villaraigosa drew a line in the sand two years ago, rejecting a call by a number of leaders – including former Mayor Richard Riordan – to have the city declare bankruptcy.
Instead, the city took steps to reduce its workforce, implement some pension reforms, place workers on furloughs, consolidate agencies and impose a hiring freeze.
“We were running on fumes,” City Administrative Officer Miguel Santana said in an interview last week. “We were at a point where we were borrowing money to pay our bills.”
But he said the city rode it out by reducing its civilian workforce and winning voter approval to reduce pensions for newly hired firefighters and police officers. Similar reforms are being considered for the civilian workforce.
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