California Pension Crisis An Increasing Drag On Cities, Counties

(KPIX 5) — Cities and counties across the U.S. are going broke trying to keep up with public pension debt. The pension crisis was the topic of a Stanford University media workshop that KPIX 5 attended this week.

“It’s the albatross around the necks of cities and counties,” Stanford Professor of Public Policy Joe Nation said about public employee pensions. “Unless we do something the system may not survive.”

ALSO READ: Report: Six-Figure University of California Pensions Up 60% Since 2012

The biggest system in the country is in California, the public employee retirement system known as CalPERS. The problem is the pension fund doesn’t have nearly enough money to cover the cost of current and future employee pensions. It’s short according to some estimates by a trillion dollars. “That’s equivalent to eight years of the entire state budget,” said Stanford Professor of Economics Jeremy Bulow.

Critics say CalPERS has been hiding the enormity of the problem the same way a gambler hides their losses – by assuming that in the future, there will be huge and unlikely returns on their investment. Officially, CalPERS assumes a 7.2 percent annual rate of return on their investments -but most economists believe 3 to 4 percent is more realistic.

“What you were hearing a bit today are folks saying that the return rate should be lower,” said Richard Costigan, who sits on the CalPERS Board of Administration. Last December the CalPERS board voted to cut the assumed return from 7.5 percent to 7 percent.

But a smaller amount from investments means more has to come from governments and employees. “This is the difficulty,” said Costigan. “If you lower the discount rate you push up the contribution level of employers and employees to address the unfunded liability.”

Bottom line: cities, counties, school districts and ultimately taxpayers are footing a much bigger and likely more realistic bill. CalPERS estimates about a third of local and state budgets go to pay for public pensions. Experts at this recent pension workshop estimate it’s closer to 60 percent and growing.  “Retirement spending has doubled in the last five years, and you ain’t seen nothing yet,” said Stanford public policy lecturer David Crane.

That could bankrupt some local governments. But San Jose’s former mayor Chuck Reed, who pushed hard for pension reform, says it’s a bitter pill that we all have to swallow. “You’ve got to put more money in,” said Reed. “All of these solutions … you’ve got to put more money in.”

Comments

One Comment

  1. Ronald Stein says:

    “Defined retirement benefits” are creeping into budgets, especially when those benefits are underfunded. The unintended consequences are that it’s unfortunate that future generations, unable to vote today, will bear the costs of many enacted pension programs, entitlements and boondoggle projects, requiring them to pay higher taxes and work later into their lives to pay for these promises.

    The international business world is intelligent enough to know that DEFINED BENEFITS, neither capped nor precisely quantifiable in advance, financial disasters to any business, thus all businesses focus on the known, i.e., defined CONTRIBUTIONS alone.

    Stealing from the young who have no votes, but silently shoulder the costs and bear the burden of unfunded promises of these programs to enrich the old seems to describe the Governments expansion of entitlement benefits and other government services, along with the taxes young people will have to pay to support them, mostly to subsidize older Americans.

    Virtually all elected officials are heavily financed by unions which are focused on entitlements for their current members. The unions, government, and other bureaucrats have been very successful in manipulating the system to enrich themselves. Thus, no changes can be expected in the foreseeable future for elected officials to ever abandon their source of votes.

    It’s the inmates running the pension Asylum that are loading up system with lucrative packages for themselves, to be paid for by current and future taxpayers.

    The inmates know that debt for our future generations buys votes. Over the decades, the proven “concept’ practiced by voters is to defer as much financial responsibilities as possible from our current financial responsibilities to future generations, that have no votes on the subject. Simply stated, if we cannot afford it today, pass it off to the future generations to minimize any impact on our current lifestyles.

    Even before those young folks can vote, our Golden State schools are on track to force substantial budgetary cutbacks on core education spending, as public schools around California are bracing for a crisis driven by skyrocketing worker pension costs that are expected to force districts to divert billions of dollars.

  2. Steve Lewis says:

    PERS managers are responsible for the agreed pensions which each city / agency bargained for and paid for. For those that do not understand many times public agencies go for years without cost of living increases to pay for their bargained and agreed upon defined benefit. This is not the fault of those workers who gave up other benefits to obtain this retirement benefit. The cities PAY PERS the agreed amounts which PERS set. Shame on PERS managers and politicians who caused this problem.

  3. Steve Lewis says:

    Maybe if California would stops spending billions of dollars on boondoggle projects (train to nowhere) and also reign in the costs of illegal immigrants ($33 billion or more per year) as well as demand welfare recipients prove they are unable to work, as opposed to not willing to work.

Leave a Reply

Please log in using one of these methods to post your comment:

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

More From CBS San Francisco

Get The New CBS SF Bay Area Local App
Got Our Weather App?
LIVE: Monday through Friday from 3am – 3pm PST

Watch & Listen LIVE