Pension Obligations Bite into all City Budgets
Thursday, March 19, 2009
The city of San Diego gained national notoriety with its billion-dollar pension deficit. KPBS reporter Alison St John surveyed the other 17 cities in the county, and found many cities are paying more of their annual budgets towards pensions than San Diego.
Christopher Bennett works in San Diego’s Central Library downtown. In spite of the talk of Cadillac public pensions, he says most city employees cannot expect a golden parachute at the end of their careers.
"I would consider myself to be at the top end of a large clerical pool of civil servants at the city, and those parachutes are not opening for us," says Bennett.
Bennett calculates his pension would be just over $20,000 a year after 20 years at the city. That’s 55 percent of his salary. He is more typical than some police and fire employees who will retire with guaranteed pensions of over $100,000.
But overall, the cost of covering these pensions is more than $150 million for the city of San Diego this year. Mayor Jerry Sanders focused on those payments in the State of the City speech.
"Any discussion of our financial welfare begins inevitable with the ever- widening crater our annual contributions to the pension and benefit system makes in our budget each year," says Sanders.
No other cities in the county manage their own pension funds. They all contract with CALPERS, the California Public Employees Retirement System. But Chula Vista Mayor Cheryl Cox says that doesn’t make it any easier to make the annual payments.
"We belong to CALPERS, San Diego doesn’t, so we are told by CALPERS what our payments will be," she says.
This year, Chula Vista is paying about 17 percent of its General Fund to annual pension contributions and pay off pension obligation bonds. That’s significantly more than the 10 percent the City of San Diego is paying out of its General Fund for pensions.
In fact, almost all the cities with their own police forces pay a bigger share of their General Fund money for pensions than San Diego.
(To see how much your hometown spends on pensions, check out the charts on the left)
CALPERS is doing its best to protect cities from the wild swings on Wall Street. Ed Fong of CALPERS explains that when markets fall, pension payments go up, when they rise, payments go down.
"You actually had situations in the late 1990s and 2000 where many CALPERS employers, cities and counties, were paying nothing to CALPERS, because the rate had essentially dropped to zero," Fong says.
But now the markets are crashing, cities will be on the hook for millions of dollars to make up guaranteed pensions. In 2005, CALPERS adopted a so-called “rate smoothing” policy that means market fluctuations are spread out over a longer term.
Fong explains this is why the effects won't be felt immediately.
"Fortunately, next year the rates will not be going up because of rate smoothing," Fong says. "I think what people are worried about is essentially two-and-a-half years down the road."
Fong says CALPERS is warning cities to be prepared for a jump in pension contribution rates in 2011. He says there’s a good chance the economy will have picked up by then. But Mayor Cox of Chula Vista says the rate hike is not comforting news.
Marcia Fritz is an accountant and president of the California Foundation for Fiscal Responsibility. She’s watched public employee benefits since the 1990s and she says costs have mounted faster than her worst predictions.
"They picked methods to pay for these promises that minimized the cost initially and then shoved the cost to future generations and that’s what’s happening today," says Fritz. "The cost now for promises we made about eight years ago are impacting city budgets -- it’s untenable."
Mayor Cox says because most cities, like Chula Vista, are locked into the CALPERS pension system, pension reform will have to happen at the state level.
" There’s going to be a great debate about what is a fair pension," Cox says.
Down at the Central Library, Chris Bennett, isn’t optimistic about his pension. Even if it isn’t cut by reforms, he doesn’t think he could survive on what it will pay. " I don’t believe so, not in this state," he says. "My retired friends have been giving me advice of moving out of the state."
Cities cannot promise a brighter future for Bennett. As revenues fall and costs rise, towns around the region already find their pension obligations taking a bigger and bigger share of the money that keeps police and fire stations, parks and libraries open.
Alison St John, KPBS News.
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