Sunday, March 27, 2011

Sacramento Bee: Cities, Counties Face Higher Pension Costs

California cities, counties face bigger bill for employee pensions

Published: Sunday, Mar. 27, 2011 - 12:00 am | Page 1B
The bill is coming due this year for local governments struggling to fulfill generous pension promises they made in better economic times.

Starting July 1, most cities and counties in the Sacramento region will need to step up their contributions to the California Public Employees' Retirement System, which administers benefits for their 14,000 employees.

These cash-strapped local governments will see their combined contributions jump by $26 million to a total of $200 million, a Bee analysis shows.

That's money that won't go to other services – such as police protection, recreation programs and senior centers.

The increase won't stop at $26 million, either. Higher CalPERS contribution rates are being phased in over the next three years and will remain in place for 30 years.

Today's situation is the reverse of a decade ago, when rich investment returns had boosted CalPERS' portfolio by $68 billion in just three years. When the fund proposed a plan to sweeten state retirements, it encountered scant opposition. By the end of 2000, local governments began adopting similar enhancements.

Now, thanks to a stock market meltdown, a housing free fall and thousands of job losses, local and state politicians are rethinking the retirement benefits approved then.

The Little Hoover Commission, a bipartisan government watchdog agency, last month calculated that the 10 largest public pension plans in California faced a combined $240 billion shortfall in 2010.

More than a third of that shortfall belonged to CalPERS, the commission found.

CalPERS has cited its 24 percent investment loss in 2008-09 as largely responsible for the higher contributions rates it's now charging local member agencies, along with longer life expectancies for retirees.

But some say that doesn't tell the whole story.

In El Dorado County, Auditor-Controller Joe Harn criticized CalPERS for not recognizing in the late 1990s that the strong investment returns wouldn't last forever.

"They gave reports to local agencies that you could increase retirement benefits and it will be very, very affordable," Harn said. "When the market jumped dramatically, they gave (local governments) relief from contributions."

Sound investment planning means putting away money in both good times and bad. CalPERS didn't do that, he said.

"That inconsistency has left a huge obligation for the next generation," Harn said.

The market value of CalPERS pension assets for non-safety workers shows the magnitude of the problem. In June 2008, the pension plans of most area cities and counties had assets equal to about 85 percent of their obligations, a level considered adequate.

A year later, funding levels for most fell to under 60 percent, well below the projected need.

One local government that doesn't belong to CalPERS has fared better. Sacramento County will see a decrease in contributions after July 1 to its retirement system, which covers 13,000 workers.

Local officials faced with rising pension costs today said they did not expect this outcome 10 years ago.

Then, they enthusiastically signed on to benefit increases, which were promoted by CalPERS, the Legislature and labor groups.

Some local governments even gave workers a break from contributing to their pensions in lieu of raises.

"All were overreaching," said Rancho Cordova City Manager Ted Gaebler. The increased obligations weren't sustainable, "but in those days nobody knew that."

Now, Gaebler said, "the cost of public sector pensions in many agencies is so high that it is driving out the ability of local governments – cities and counties and schools – to provide services."

Labor groups say workers shouldn't become the scapegoat for bad decisions.

"We didn't cause this depression," said Bill Camp, executive secretary of the Sacramento Central Labor Council. "We didn't cause this break in the stock market. The stock market is coming back.

"To go after workers is absolutely stupid and wrong-headed. The purpose of a pension is to make sure you don't eat dog food when you retire, that you have enough money for food and medicine."

The public pensions' funded status for 2010 will be released this fall.

Still, many labor groups are agreeing to scale back benefits – fearing something worse if they don't.
A half dozen unions representing about 170,000 state workers have agreed to contracts that reduce retirement benefits for new hires and increase what employees pay toward their pensions.

Local governments are seeking similar concessions from their public employees.

In the Sacramento region, Gaebler and Woodland City Manager Mark Deven are leading an effort to develop a united front among local governments in seven Northern California counties as each negotiates labor contracts.

They have proposed reducing benefits for new hires and ending the practice of paying employees' shares of contributions.

Not long ago, that follow-the-leader approach worked in reverse.

Matt Rexroad, chairman of the Yolo County Board of Supervisors, remembers when the first Northern California city offered an enhanced pension benefit for safety workers' early retirements.

Others in the region quickly followed suit.

When he served on the Woodland City Council, Rexroad said, he joined a voting majority that "made a mistake by increasing benefits for city employees."

Now, as a member of the Yolo Board of Supervisors, Rexroad said he recognizes the need for change from past practices. These days, he said, "I've been against any sort of increases."

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