Costa Mesa, CA Prepares to Dig Pension Hole Deeper

An Orange County Register editorial today takes the city of Costa Mesa, CA to task for considering a proposal to boost public safety union pensions, which would virtually ensure spiraling long-term taxpayer obligations at the very same time policymakers need to doing everything possible to reduce them:

These are tough economic times, yet public-safety unions have yet to learn that times have changed, and that there’s no money left to fill their insatiable demands for benefits.

For instance, at Tuesday’s Costa Mesa City Council meeting, the council voted to approve mandatory unpaid time off equal to 5 percent of pay for most city workers, looking to shave $3 million off the city budget. At least those workers get the benefit of time off. But pay for part-time nonunionized workers was cut by 5 percent. But at the same time, the council also gave preliminary approval to grant firefighters an unreasonable demand for the same type of “3 percent at 50” retirement program that is wreaking havoc in government budgets across California.

That plan allows firefighters to retire at age 50 with 90 percent of their final year’s pay, and that’s before all the many pension-spiking tricks that sometimes enable firefighters to retire with guaranteed incomes above their final year’s salary. The vote was 3-2, with Mayor Allan Mansoor and Councilman Eric Bever voting no. Yes, the deal provides some cost savings during the four years that the Memorandum of Understanding is in effect. The city claims savings of $5.4 million, mainly by not filling open positions, reducing minimum staff levels, adding a small contribution from workers and reducing overtime costs ââ?¬â?? something the city says will “impact the number of personnel available to provide assistance on some calls.”

But the additional retirement benefit will cost a lot to taxpayers, per a city analysis: “The additional cost of the retirement enhancement based on figures provided by CalPERS is $703,842. In noting this figure, it is important to note that this rate will most certainly increase in ensuing years due to the losses incurred by CalPERS in its investment portfolio as a result of the current recession.”

What the analysis doesn’t explain: Those cost savings come over four years, but the cost increases go on for decades, given that retirement boosts are binding contracts tied to employee life spans. The benefit enhancement allows firefighters to retire at age 50 rather than 55. Cities and governments, instead, need to move in the other direction. Fifty is an exceedingly young age to retire.

As usual, the public will endure reduced services and higher costs because of such foolhardy decisions.

If you missed it, check out my colleague Adam Summers’s recent post on the nefarious issue of pension spiking:

What’s even more maddening is that governments need not allow such pension spiking, but they do anyway. The state Court of Appeal has ruled that such “termination payments” do not have to be included in pension calculations, so governments should stop giving away the public’s money! One would think that would be a no-brainer, especially at during a time in which state and local governments are struggling to balance their books. The silver lining to the current economic crisis is that perhaps it will finally force legislators to sit up, take notice of the unsustainable costs they have imposed on taxpayers, and finally return to more sensible public employee compensation rates.

Apparently not in Costa Mesa. Instead of digging the long-term fiscal hole deeper, Costa Mesa should be shifting away from the defined-benefit pension plan model towards 401k-style defined contribution plans that prevent lawmakers from creating actuarial liabilities by pushing hidden costs off into the future, as discussed in Reason Foundation’s 2006 policy study, The Gathering Pension Storm.