Innovators in Action (April 2014 edition): Reforming Defined-Benefit Pension Systems in Bakersfield and Kern County

The latest interview in Reason Foundation’s Innovators in Action 2014 series focuses on reforming defined-benefit pension systems in Bakersfield and Kern County, California.

When he was serving as a Bakersfield city councilman, current Kern County Supervisor Zack Scrivner spearheaded Measure D, a ballot measure approved by Bakersfield voters in 2010 that reformed the city’s pension system for newly hired public safety employees. Scrivner continued those efforts at the county level after being elected to the Kern County Board of Supervisors in 2010, having successfully negotiated for comprehensive pension and healthcare contribution reform with county public employee unions in 2012.

I recently interviewed Scrivner on the rationale for the city and county pension reforms, the similarities and differences between them, lessons learned, and much more. Here’s an excerpt:

Scrivner: […W]hen I got elected to the Bakersfield city council, I asked for the city manager to give me some information on the city’s CalPERS pension costs. What I discovered was pretty startling. It was something that I later learned was the norm for other cities and counties that had followed the state’s mistake in raising public employee pensions to the “3% at 50” [Editor’s note: a retirement benefit plan in which public workers are able to retire at age 50 with the percentage of final pension compensation being calculated as 3% per year multiplied by the number of years of service] for public safety employees and “3% at 60” for non-safety employees.

Back in the mid-1990s, the city’s retirement costs were overfunded. In June of 1999, the pension fund had an excess of $94 million, and we weren’t having to make payments to CalPERS. But by the time the city council had raised those pension benefits in 2002 from “2% at 50” to “3% at 50” for public safety employees and “2% at 55” to “3% at 60” for non-safety employees, that surplus of $94 million turned into a $27 million unfunded liability.

And that number kept rising. By the time I was in office in 2005, that unfunded liability had reached $93 million. So there was a complete swing of over $180 million as a result of the increased pension benefits.

And in terms of the costs—what the city was paying into CalPERS—the city went from paying nothing to making a $4 million annual payment in the early 2000s. That rose to an approximately $15 million annual payment by the time I got into office in 2005, and when I left six years later, that payment was in the neighborhood of $25 million per year. That was impacting our budget tremendously, despite the fact that we had had a housing boom and the economy was robust at the time.

When I saw that, I thought back to all of the people I had talked to on the campaign trail and the issues they were concerned about—graffiti in their neighborhoods, the potholes, and the fact that there weren’t enough police officers on the street. And I saw this as directly impacting the city’s ability to provide a level of service in government that my constituents expected and, I felt, deserved.

[…] So I got a tremendous amount of resistance, and there was no one else on the city council that wanted to talk about pension reform. They just wanted to blame it on the stock market, claim that at some point it was going to turn around, and argue that these safety workers were putting their lives on the line and so they deserved the benefits they were given.

And while I appreciate as much as anyone the kind of work that a policeman or firefighter has to do, to me it’s not a question of what these workers deserve in their retirement, but rather it’s a question of what we as taxpayers can afford. And it was clear to me that we couldn’t afford it, and we were going to have to change it.

Check out the full interview here. Other articles featured in the Innovators in Action 2014 series are available here.