POLITICS

California pension rate hike could push more struggling cities over the edge

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Politics,Beltway Confidential,Michal Conger

California cities are already struggling to regain financial stability and restore public services slashed during the recession. Now the state’s biggest public pension fund wants to raise its rates again to make up for its own budget problems.

Calpers, the state’s public employees’ retirement system, last week tentatively approved a rate hike of about 50 percent on employers over the next six years, according to Ed Mendell at Capitol Weekly. The proposal would replace a policy that kept rates low during the recession.

The problem is that pension liabilities are already a huge burden for cities that haven’t even managed to close their own budget gaps since the recession hit.

The Calpers board gave unanimous “first reading” approval to the rate hike proposal, asking for more information before final approval scheduled next month. Several board members said they may prefer a longer phase-in period to reduce the impact on employers, but they agree public employers will need to pay more whether they have the money or not.

Calpers handles the pensions of 1,567 public agencies throughout the state. In 2007, when everything was still golden in California, the fund had almost $260 billion in assets, 101 percent of the what it needed to cover future pensions costs. But when the stock market crashed, it lost $100 billion. Calpers is finally back up to $256 billion in assets, but its $100 billion gap isn’t being closed quickly enough at the current contribution rate.

The proposal wouldn’t just hurt employers. The state’s new pension reform law that went into effect this year will shift the burden for retirement costs to new public employees, who will be paying more for fewer benefits over the next 30 years.

Instead of waiting for employers to benefit from the shift, Calpers’ proposal would mean both employers and employees would be paying much more for retirement costs that already make up a sizeable chunk of most cities’ budgets.

“I believe employers would be pressured to put some or all of that burden on employees rather than make cuts to their organization,” Robert Samario, finace director for the city of Santa Barbara, told The Washington Examiner.

“Cities and counties are just now starting to either balance their budgets or restore areas that were cut too deep. 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.”

Calpers board member George Diehr said Calpers has been “too protective” of employers, Capitol Weekly reported. Diehr said employers should take the responsibility for any sharp increases in the benefits they promised employees, whether through reserves or borrowing.

But Samario said some cities simply can’t afford to anymore.

“For cities that are still struggling to recover, this could be the last straw,” he said.

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.

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