CalPERS obligations cripple city, county budgets

Union Democrat staff /

A telling statement concluded reporter Walt Cook's Tuesday story on California's Public Employees Retirement System (CalPERS) and the resulting dilemma facing county and city governments.

"It used to be that all the big commercial companies had (pension) plans like that," said Tuolumne County Human Resources Director Eric Larson of the guaranteed pensions CalPERS offers. "Then, they got rid of them."

The reason is simple: Executives in private industry, foreseeing poor economic times when profits are down and investments not performing - and changing demographics -did not want to be on the hook for retirement payments their companies could not afford to make.

But PERS, in today's terrible economy, is soldiering on. And local governments will soon be paying the price.

In the heady, pre-recession economy, PERS was an investment engine few could match.

Riding the bull market like a tidal wave, their investments topped out at $260 billion before the crash. But by October of 2008, their portfolio plunged by 25% and in the 2nd quarter of 2009, it was still down $50 billion.

The consequences for local government? Because PERS investment income is down, the agency is less able to cover public employees retirement costs. Cities, counties and special districts must take up the slack.

Tuolumne County, for example, is now paying PERS 19 cents for every dollar regular employees earn and 36 cents on the dollar for public safety employees, who get more generous retirement packages. The county, last fiscal year, paid PERS some $7.8 million - close to the total of cuts the administration and Board of Supervisors had to make to balance this year's budget.

The answer?

County Administrator Craig Pedro said asking employees to pay a portion of their own retirement - a common practice in the private sector - is an option. Longtime Sonora Administrator Greg Applegate said downsizing - trimming back full-time, fully-benefited employees in favor of part-time and seasonal workers is a possibility.

Managers agree that PERS estimable benefits can attract top notch employees. But with the economy in the state it is today, it's a luxury local government cannot afford.

Some facts of interest: PERS paid out $16 billion in health and retirement benefits in 2007-08. Statewide, some 6,000 retired government employees, according to one watchdog group, are bringing home $100,000 a year or more in retirement. In state government, for the 2009-10 fiscal year, an additional $3.3 billion was diverted from its general fund budget to CalPERS budget to make up for the shortfall from its investment losses.

County governments and city governments throughout California are having to fund these higher employee pension cost shortfalls at a time when the recession and housing slump have reduced their tax revenues. Sadly, this leads to a further reduction of much-needed city and county services.

The current system is clearly unsustainable. Public employee benefits should more closely reflect those paid in the private sector. An introduction of a two-tier PERS structure - with newly hired public employees signing on to reduced benefits - must begin soon. Restructured contracts and realistic employee contributions should also be part of a systemic PERS overhaul.

The bigger question: Is there the political will or courage to confront the public employee unions on these issues?

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The Union Democrat
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