Pensions Continue Eating More of Local Budgets

As more and more tax dollars are siphoned off to pay escalating public pension costs, local governments across California are increasingly struggling to provide quality services to their residents. And the problem gets worse with each passing year.
“Anaheim, the county’s largest city, faces a pension tab of $56.2 million this fiscal year – equivalent to nearly 20 percent of its general fund,” the Register recently reported. “Garden Grove, Orange and Fullerton are slated to pay what amounts to 18 percent of their general funds for pensions this year.”
Last month, the California Public Employees’ Retirement System indicated it is raising required contribution rates by more than 9 percent, a move that will cost state and local governments nearly $600 million. This is just the first in a series of rate hikes that CalPERS plans over the next several years in an effort to become fully funded. CalPERS was just 70 percent funded after 2013, but double-digit investment returns helped it rise to 77 percent funded in 2014. But the largest pension system in the U.S. still has a long way to go before it is fully funded and able to actually pay for all of the retirement benefits that have been promised to government workers.
As these state and local pension payments and debts continue to rise, the pathways to pensions reform continue to vanish. Efforts to reform broken pension systems have been blocked by the Public Employees Relations Board and the courts. The Voter Empowerment Act of 2016 aims to change that by giving voters the constitutional right to approve or reject the retirement benefits for future government employees, as well as require voter approval to increase the pension benefits of current employees. Additionally, the initiative would prevent government agencies from paying more than 50 percent of the total cost of employees’ retirement benefits, unless voters explicitly approve otherwise. Public employees would be required to contribute the balance of the costs of their pensions.
The proposed state constitutional amendment would apply to all public employee pensions throughout the state. It needs 580,000 signatures from California voters to qualify for the 2016 ballot.
Opponents of reform are already in an uproar, calling it diabolical and Orwellian. Lawyers from Rains, Lucia and Stern, who represent over 250 public safety unions, claim the initiative “strips away collective bargaining rights,” “freezes out elected representatives” and would force government workers to “pay a ‘tax’ of 50 percent of the pension bill.”
The hypocrisy runs deep in these statements. The pension crisis is largely the result of elected representatives making lavish pension promises to government workers. Since these benefits wouldn’t have to be paid for until they were long out of office, the politicians wouldn’t be held accountable. The people ultimately stuck with the bills – taxpayers – were the ones without a say in the matter.
Today, unfunded pension liabilities are often the largest source of debt for governments. “For citizens and taxpayers, unfunded pension liabilities are actually more of a burden than bonded debt,” said David Crane, a research scholar at the Stanford Institute for Economic Policy Research.
The state’s unfunded pension liabilities are over $150 billion. Yet, Californians haven’t had a vote in this pension debt. We have been paying the “tax” for these pension obligations through increased fees and taxes, as well as reduced delivery of public services. As pension payments eat up more and more of local and state budgets in years to come, additional service cuts will be needed.
If it were on the ballot, the Voter Empowerment Act of 2016 would give voters a chance to ensure that government labor contracts and the long-term pension promises that come with enormous price tags receive the public discussion and voter approval they deserve.
Pete Constant is a pension policy analyst at Reason Foundation and former member of the San Jose City Council. This article originally appeared in the Orange County Register.