While it seems that all of the public pension news lately has been bad, especially here in California (losses to public pension funds will require higher taxpayer contributions to make up for the shortfalls, excessive pension benefits have driven the City of Vallejo into bankruptcy and run others, like the City of San Diego, to the brink of bankruptcy, etc. — see my previous post below or here for more on this), the recent elections did produce a couple of local victories for taxpayers on the pension issue. In Pacific Grove, voters approved Measure Y, an advisory vote on whether the city should shift out of the traditional defined-benefit pension system of the California Public Employees’ Retirement System (CalPERS) and establish its own 401(k)-style defined-contribution retirement plan, with over 56% of the vote. According to Mayor Dan Cort (Monterey County Herald, “Pacific Grove: Voters approve leaving pension plan, November 6, 2008, available in paid archive at http://www.montereyherald.com/archivesearch), who just won his re-election bid, “It’s [the state retirement system is] a burden, expensive, an unfunded liability.” Added Cort, “Cities all across California are being crushed by pensions.” In Orange County, voters overwhelmingly approved a proposal to require voter approval of all future benefits increases for county employees (not including general cost-of-living adjustments). Similar voter approval requirements have helped even “liberal” local governments such as San Francisco fare relatively well in terms of their pension system health, while supposedly “conservative” areas like San Diego and Orange County have been choked by excessive benefits. (San Diego finally adopted a similar measure in November 2006.) Measure J was unanimously supported by the county supervisors and passed with a commanding 75% of the vote. The measure also requires county officials to present voters with an actuarial study detailing the full costs of any benefits increases and their effect on the county’s unfunded pension liability. Orange County’s pension system is currently only 73% funded and is running a $3 billion unfunded liability. County Supervisors’ Chairman John Moorlach labeled Measure J “an insurance policy for the taxpayer,” because it would prevent the kind of private labor negotiations that led to significant benefits increases in 2001 and 2004, and which were largely rubber-stamped by county supervisors. While both the Pacific Grove and Orange County efforts represent positive steps in the right direction, they can only address future pension costs. Since existing benefits levels are already locked into law and cannot be reduced, the costs that have been racked up (and will continue to rack up) under these plans must be paid for one way or another. If Pacific Grove is successful in moving out of the CalPERS defined-benefit system into a more reasonable 401(k)-style defined-contribution plan, that should be the model for other state and local governments looking to avoid the pension disasters of Vallejo, San Diego, and others.
Adam Summers is a senior policy analyst at Reason Foundation, a nonprofit think tank advancing free minds and free markets. He has written extensively on privatization, government reform, law and economics, and various other political and economic topics.