By Dan Walters | Feb. 4, 2018 | Commentary
From one end of California to the other, hundreds of cities are facing a tsunami of pension costs that officials say is forcing them to reduce vital services and could drive some—perhaps many—into functional insolvency or even bankruptcy.
The system that manages pension plans for the state government and thousands of local governments lost a staggering $100 billion or so in the Great Recession a decade ago and has not recovered. The California Public Employees’ Retirement System (CalPERS) is rapidly increasing mandatory contributions into its pension trust fund to make up for those losses, cope with a host of rising expenses and, it would appear, stave off the prospect of its own insolvency.
City managers, facing annual increases in contributions of 15-plus percent, are feeling the squeeze, which a new Stanford University study finds is crowding out “resources needed for public assistance, welfare, recreation and libraries, health, public works, other social services, and in some cases, public safety.”
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Marina Gallegos, the human resources officer for Salinas, spoke for many city officials when she told CalPERS representatives who briefed her city council on the increases: “This growth is unsustainable.”
“Unsustainable” is a word that pops up frequently in public statements and interviews with local leaders, along with the “B-word.”
“We don’t know how we’re going to operate,” Oroville’s finance director, Ruth Wright, told the CalPERS board last year as a delegation of city officials pleaded for relief. “We’ve been saying the bankruptcy word.”
While all CalPERS client agencies, including school districts, counties and the state itself, are being hit by its rising demands for money, the state’s 482 cities are being clobbered the hardest. They devote the vast majority of their budgets to personnel costs, particularly for firefighters and police officers who have the most generous pension benefit—up to 90 percent of their highest earnings—and thus incur the highest pension costs.
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