Editorial: Reamed by retirements

Municipalities face spiraling outlays for pensions, health

care for retirees.
An Orange County Register editorial

Sunday, October 11, 2009

As government at all levels struggles with declining tax revenue and increasing operating costs,
the elephant in the room largely ignored is the monumental expense of public employee
retirements. A recent study by a taxpayer organization points out the behemoth of a problem by
noting the obvious: When government agencies increase employee pension costs, they tend to
increase taxes to cover the added expense.

A San Diego County Taxpayers Association study of municipal retirement systems shows that
pricey pensions not only drive up costs, but ultimately also drive up taxes. This link between
pensions and tax increases became apparent in a study of 17 cities in San Diego County. El
Cajon leads the pack, spending almost one-fifth of its general fund on pension obligations.

Confirming the obvious, the study discovered that four of the five cities with the largest pension
costs also have asked voters to approve sales tax increases the past three years. The cities studied
spend an average of 10 percent of their general funds on pensions, compared with the 4 percent
statewide average reported last year by a state commission.

Most of the cities opt for the generous California Public Employees' Retirement System benefit
formulas, including three-fourths that provide police and firefighter pensions paying 3 percent of
final salary for each year of service at age 50 and 30 years on the job.

As these costs have weighed increasingly on financially strapped municipalities, some have
moved to require employees to pay more of the cost. Unless government managers and elected
officials begin to rein in these mounting costs, public agencies will be forced to divert growing
portions of operating budgets to pay for the retirements of people, many of whom are no longer
on the payroll. This will necessitate reductions in ongoing services for constituents, who pay the
bill.

More troubling yet is that these high costs don't reflect substantial new increases expected in the
near future to recoup investment losses suffered in the economic downturn.

This elephant-size problem can't be ignored forever. When local elected officials finally
understand they must curb these runaway pension expenses, they are likely to discover an even
larger unfunded debt they also have ignored. A commission appointed by Gov. Arnold
Schwarzenegger reported last year that unfunded retiree health care costs for state and local
governments will run at least $118 billion in the coming three decades. The San Diego taxpayer
group says it may conduct a similar study on retiree health costs.

"We actually believe it (retiree health care) is likely to have a greater cost than public pensions
over the long haul," said Lani Lutar, the group's president.

We believe it's long past time for locally elected officials to acknowledge both elephants in the
room before municipal finances are trampled by unfunded pension and health care obligations.
Union-Tribune Editorial

A countywide curse
Unaffordable, excessively generous pensions close to the norm

October 11, 2009

For decades, one of the most common ways that cities, school districts and other government bodies have
sweetened contracts with public employees has been to increase or add retirement benefits. Unlike pay raises,
such concessions don't cause immediate problems with balancing the books — just future problems.

Well, as the late NFL coach George Allen used to say, the future is now. A new study by the San Diego County
Taxpayers Association paints a disturbing portrait of how much past decisions on pensions are now haunting
current budgets. The study shows that on average, 10 percent of city general funds in the county go to paying
pension costs alone. El Cajon is in the worst shape, paying a stunning 19.8 percent of its general fund toward
pension costs.

The taxpayer group offers three common-sense recommendations: Cities should stop their inexplicable,
indefensible habit of picking up most or all of employees' share of pension contributions; benefit formulas
should be reduced for new hires; and pensions should be based on the average of the highest three years of pay,
not the more common one-year formula.

The political obstacles to such changes are many. But as the editorial below about National City confirms, they
are not insurmountable. And without such fixes, cities will have no choice but to raise taxes, cut services or
both.

Those who defend the status quo simply have no case.

The old rationale for generous public employee pensions was that they were necessary because public sector
pay was less than private sector pay. That's far from the case today. According to the U.S. Labor Department, as
of December 2008, public employees averaged about $26 per hour vs. the $19 earned in the private sector.
Public sector benefits were far higher — about $13 an hour vs. $8 in the private sector.

The new rationale for generous pensions — that they are crucial to retaining valuable employees — is similarly
bogus. With the exception of law enforcement officers and a few occupational niches here and there, there is
practically no market demand evident in the public sector.

The reality is that lavish benefits enjoyed by public employees are best understood as a function of political
power. Public employee unions in California are so powerful that even the liberal editorial page of The Los
Angeles Times endorsed a 2005 ballot measure aimed at reducing their power.

Another reason that these benefits are so common is self-dealing. In many cases, the officials who negotiate
with unions over pensions stand to benefit from the raises themselves. This explains such absurdities as the
upper management of the Metropolitan Water District of Southern California pressing for a retroactive 25
percent pension spike even when the giant water agency has a staggering $400 million in unfunded pension
liabilities.

Voters must demand an end to such nightmares, whether in San Diego County or anywhere else in California.
It's time for a new era in public employee pensions — one in which reason and rationality are finally the main
factors guiding far-reaching decisions.
EDITORIAL: 'Unsustainable' key term for
benefit cuts
OUR VIEW: No storybook end for pensions' costs

The North County Times Opinion staff -- opinion@nctimes.com

Sunday, October 11, 2009 12:00 am

Unsustainable.

You'd think that word alone is all that needs to be said to trigger action on the need to revamp
existing benefits extended to our region's public employees.

Shouldn't it be a slam dunk to get public employees to contribute more (or in some cases, to
contribute at least something) to the "employee portion" of their own retirement contributions?
That's why it's called "the employee portion."

Sadly, no.

The release of last week's report by the San Diego Taxpayers Association provided even more
data supporting the pressing need to reform how local governments compensate employees.

The report confirmed a similar conclusion reached by the top brass of most cities in the county:
Workers need to contribute to their own retirements, as future tax revenues will not be able to
support the growing cost of these benefits. In short, the benefits are "not financially sustainable,"
in the words of the earlier report.

With both those groups on board, getting things changed should be quick.

But not so fast.

Surprisingly terse comments came from one North County's union rep after the report's release.
He countered that talk of having employees contribute to their own pensions was little more than
a wanton attempt to "hack employee benefits ..." The spokesman, Mike Diaz of the Escondido
firefighters bargaining unit, also hinted that our local elected officials have simply been poor
stewards of the public's money.
Surely our public employee unions have witnessed the direct impact of the rising pension costs
and the financial turmoil for public entities they have helped play a part in creating: jobs lost,
services cut, pay freezes and "furlough days," to name a few. Certainly they know many private-
sector employees are on their own when it comes to financing their future retirements.

Do our public employees believe there is some fabled source of renewable revenues? That our
local elected officials are sitting atop some hidden pile of endless gold?

Hints of poor stewardship do resonate in one aspect, however. For if our elected officials, past or
present, are guilty of anything, it's approving these overly generous benefits in the first place.

But trying to assign blame solves nothing. Now is the time to start undoing the damage.

To do otherwise is, well, unsustainable.