Rising pensions costs a statewide concern

Across California, cities are considering tax hikes, budget cuts .. many worried that bankruptcy looms in the not-too distant future.

Posted: Nov. 20, 2017 4:22 PM
Updated: Nov. 20, 2017 6:08 PM

"It's getting to be the big Gorilla in the room for negotiations - he increased costs to the employers as well as employees for pensions," said Dave Holly, the Teamsters (a diverse union group here in the North State) 137 Principal Officer .

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For those who have union jobs with a city, county or the state, their retirement fund is all through the California Employee's Retirement System - or "CalPERS".

And it's a pretty good deal, used to recruit and keep quality public employees on board.

"It's close to their ending income, if they had 30 years in they'd get 60% of their ending pay toward retirement," said Holly.

"Before the great recession, CalPERS was super-funded, so there was some years where very little had to be put in and even a couple of years where nothing had to be put in," said Meegan Jesse, Deputy Administrative Officer for Butte County.

Post recession, the investments aren't cutting it.

"Now the employees are picking up a share of their investment costs and the county share has increased significantly," said Jesse.

In Butte County, employee's now putt in about 6-11% of their own salary, and the county is adding 15-31%; and that's after some serious statewide reforms that took effect in 2013, where newly hired employees took on a greater share of CalPERS demands.

Because the pensions are paid through investments, the cost keeps going up.

"Between actual investment loses and projections to have lower earnings, that significantly increases costs," said Jesse.

Employers - often cities and counties - are becoming more in debt.

In Butte County they can afford to fund 70% of their pensions.

In the city of Chico, the unfunded liability is 140 million dollars.

But the debt is set to get worse, not better.

"The county makes a contribution of 15-31% of employee pay to CalPERS .. We are expecting that to increase to something like 26-45% by the year '24-'25," said Jesse.

Across the state, cities are considering tax hikes, budget cuts , many with the threat of bankruptcy looming in the not-too distant future.

Trinity County Waterworks District No. 1 west of Redding could be the third government agency to break with CalPERS over the past 12 months, and a loss of employees to the system spikes rates for everybody else, so it's not feasible to buy out of the contract.

"It becomes so costly for an entity to leave that I think very few agencies have actually done that," said Jesse.

In Butte County at least, financial planners say bankruptcy is not on the table.

"The expenditures for pensions that could have gone for something else, that may very well create some difficult decision, but as we've done with other significant challenges, we are working on meeting those challenges," said Jesse.

"It's not a doomsday unless you don't want to pay into it anymore," said Holly. "Long-term it just takes allocating a little more assets, money toward the pension, and it's been happening from the employee side and the employer side, but it can be fixed."

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