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POLITICS

CalPERS rate hike will hit California cities hard

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Politics,Beltway Confidential,Michal Conger

California’s largest public pension fund approved a rate hike on Wednesday that will see some local governments paying as much as 50 percent more for their employees’ pensions over the next several years.

The California Public Employees Retirement System approved the higher pension costs as part of a plan to pay off its own liabilities faster, according to Reuters. CalPERS lost $100 billion in the recession and has already been charging local governments more to make up for its losses, but the gap isn’t being closed fast enough.

The fund has  been “smoothing” its gains and losses over 15 years to keep payments consistent, but the new policy will speed up that period to five years to help CalPERS pay off its losses and become fully funded within 30 years, according to the Sacramento Bee.

CalPERS, which currently has $87 billion in unfunded liabilities, is about 70 percent funded, which means it is 30 cents short for every dollar it must pay retirees in the future. A recent CalPERS report said the agency’s major pension plans have at least a 50 percent chance of falling below 50 percent funding status at some point in the next 30 years, according to SacBee.

One city’s finance director told The Washington Examiner last month the payments will prove a major burden for California cities still trying to recover from the recession, whose largest debt is often their pension payments.

“Cities and counties are just now starting to either balance their budgets or restore areas that were cut too deep,” said Robert Samario, finance director for the city of Santa Barbara, when CalPERS gave preliminary approval to the rate hike. “Having to cut services once again – not because of revenue declines, but because of rising pension costs – would not be well-received by the communities they serve.”

Pension debt was already the last straw for Stockton. The bankrupt city has become a test case for what happens when a public agency can’t pay its pension obligations. San Bernardino and Mammoth Lakes have also declared bankruptcy, and several more are teetering on the edge.

But Gov. Jerry Brown’s office said the new policy will help stabilize the fund and keep CalPERS from putting off paying its obligations, which could be even more costly to cities in the future. “We believe it’s a matter of pay now or pay more later,” Richard Gillihan of the California Department of Finance told the fund’s Pension and Health Benefits Committee on Tuesday, according to SacBee. “We believe pay now makes better fiscal sense.”

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