L.A. pensions may consume a third of city’s general fund by 2015
The cost of retirement benefits for Los Angeles city employees will grow by $800 million over the next five years, dramatically eroding the amount of money available for public services to taxpayers, according to a report issued Tuesday.
In a bleak assessment delivered to members of the City Council, City Administrative Officer Miguel Santana said pensions and health benefits for current and future retirees would jump from $1.4 billion next year to at least $2.2 billion in 2015.
Those costs remain a fraction of the city’s overall annual budget, which is currently $18.8 billion. But more troubling is the fact that retirement costs are consuming an increasingly large portion of the general fund, which pays for basic services such as parks and public safety.
By 2015, nearly 20% of the city’s general fund budget is expected to go toward the retirement costs of police officers and firefighters, who now have an average retirement age of 51. The figure was 8% last year.
Once civilian employees are factored in, nearly a third of the city’s general fund could be consumed by retirement costs by 2015, Santana said.
“For every dollar you’re paying into your pension systems, you’re not paying into libraries, parks and various other city services,” Santana told the council.
Shortly after Santana’s presentation, the council voted to study the possibility of using employee-managed 401(k) investment plans — long favored by private industry — to provide a portion of the city’s retirement benefits.
Representatives of the city’s public safety unions warned officials not to rush to judgment on fixes to the pension problem.
“I highly recommend that we go very slow on this issue,” said Peter Repovich, director of the Los Angeles Police Protective League, which represents rank-and-file officers. “It seems there’s a lot of group-think going on across the state and the nation” on the issue.
Repovich warned council members that veteran police officers don’t want their pensions “tinkered with.” But Councilman Bill Rosendahl, who pushed for the 401(k) study, said his constituents are demanding comprehensive changes to a system that threatens to eat away at core services.
“We can no longer sustain the pension and healthcare plan that presently exists,” he said.
Los Angeles operates three pension systems — one for police officers and firefighters, a second for Department of Water and Power employees and a third for all remaining civilian workers. All three systems have seen the cost of benefits increase between 2001 and 2009.
City officials attribute those increases to various factors: the collapsing economy, which caused investment losses in the three city pension funds; growth of the city workforce; longer life spans of retired city workers; and a 2001 ballot measure that gave police officers and firefighters more generous retirement benefits.
The DWP’s contribution to its pension system increased eightfold between 2001 and 2009, according to Santana’s figures. The Los Angeles City Employees’ Retirement System, which covers civilian workers not employed by the DWP, saw a fivefold increase during the same period, he said.
So far, a committee made up of Villaraigosa and four council members has made little progress with civilian labor unions on renegotiating their contracts to make changes to the pension system. But it has opened talks with the Police Protective League about a ballot measure that would — either partly or entirely — roll back retirement benefits put in place by voters in 2001 for newly hired police and firefighters.
The 2001 ballot measure, backed by then-Mayor Richard Riordan, allowed sworn personnel to retire after 33 years of service with a yearly pension equal to 90% of their annual pay. Since then, Riordan has warned that pension woes will force the city to close its parks and libraries by 2012 and enter bankruptcy by 2014.
Fixing the problem will not be easy. Under state law, city negotiators cannot roll back a retirement benefit for an existing worker without providing another benefit equal in value. Although they could seek to negotiate contracts that decrease benefits for newly hired workers, such a move would make a relatively small dent in the pension problem at a time when the city is mostly subtracting, not adding, employees.
Santana tried in January to persuade Villaraigosa and council members to begin negotiations with labor leaders on the need to scale back the cost of benefits. That effort was postponed while city leaders grappled with a $485-million budget shortfall.
Councilman Paul Koretz suggested that the city could save money by merging its three pension systems — a move that has been opposed by various employee groups. Koretz said some city workers might view a merger as a more favorable alternative to having their benefits cut.