Governments continued to enhance pensions amid economic collapse
Scores of California government agencies continued to sweeten employee pension plans even after the state’s economy began collapsing into recession in 2008, a decision that is now haunting them as they struggle with deficits and deep budget cuts.
A state oversight panel has identified about 180 local governments that increased pension benefits at a time when the state’s unemployment rate was rising, housing prices were falling and the nation’s banking system was in crisis. The enhancements covered thousands of public employees, adding tens of millions of dollars of new debt to local governments, analysts say.
Cities are now paying the price.
Costa Mesa boosted the retirement benefits of 84 firefighters, at a cost of $694,000 per year. At the time, officials thought the deal made financial sense because the firefighters union agreed to forgo more raises in exchange for new pensions rules that would allow them to retire at age 50 with 85% of their salary if they’d been on the job 28 years.
Now, Costa Mesa says it’s facing a $1.4-million deficit and has sent layoff notices to half its employees. Officials plan to eliminate the Fire Department, contracting with the Orange County Fire Authority in a move they say will save money.
“At that time, the unsustainability of pensions was not a front-burner item,” said City Councilwoman Wendy Leece. “We were looking at the bigger issue of reducing the budget. The firefighters came with this plan, and it saved us money, rather than give them a raise, which would have cost money. It is what it is. We don’t live in a perfect world.”
Officials on the nonpartisan Little Hoover Commission, a state watchdog agency, pointed to the retirement enhancements made since 2008 as evidence of a pension system out of control, particularly at the city and county level.
“Barring a miraculous market advance and sustained economic expansion, no government entity — especially at the local level — will be able to absorb the blow without severe cuts to services,” the commission wrote in its report last month.
Concern about local pension excesses has driven Gov. Jerry Brown to push for a law that would impose limits on the retirement plans municipalities could offer.
The Little Hoover Commission suggests that lawmakers and local officials take even bolder steps, including finding a way to take back some benefits that have already been promised government employees, which may not even be possible. Orange County has spent $2.3 million in a legal effort to roll back pensions of county workers, so far without success.
Among the cities feeling the pain from the enhanced pensions is San Bernardino. In 2008, the city agreed to better pensions for public safety workers and the rest of the workforce. The burden on taxpayers there of paying pension costs has since grown by nearly 50%, and the bill for funding the retirement plan — $15.6 million annually — now accounts for one in every 10 dollars the city spends.
“Other cities were doing it, and we decided it would be better to pay more than lose our employees to other places and have to retrain new ones,” said Rikke Van Johnson, a San Bernardino city councilman. “To hold on to our talent and compete, we needed to do that.”
Now, he said, the city is trying to figure out how to undo it.
Soaring pension costs have forced San Bernardino to cut the number of police officers on the streets, reduce park upkeep and fill potholes less frequently, among other things. The cuts came after elected leaders balked at a proposal by city staff to raise taxes.
Jim Morris, the mayor’s chief of staff, said San Bernardino was in a box. Other municipalities — and the state of California — had been providing such generous benefit formulas for years. He said the extra pensions were underway “before the economy went over a cliff.”
In some cases, cities agreed to more benefits because employees agreed to temporary salary freezes or other concessions. But the projected costs far exceed any short-term savings such deals generated.
In other cases, the benefit enhancements created a windfall for a select few.
The Sacramento suburb of Citrus Heights decided to put its part-time elected officials on the government pension plan in 2008, a move that probably seemed inconsequential given the $600-a-month salaries that council members drew. But when one council member was appointed by former Gov. Arnold Schwarzenegger to a state post last year that pays a six-figure salary, his 13 years of service in Citrus Heights ended up boosting his overall pension by at least $45,000 a year.
In Atwater in the San Joaquin Valley, former City Manager Greg Wellman, who helped negotiate pension enhancements before retiring late last year, will get $60,000 a year for his eight years of service to the city, plus $186,000 a year from his previous stint in Merced County — for a total of $246,000 a year.
Wellman himself says state and local government retirement plans are “clearly not sustainable.” Employees need to pay for more of the cost, and benefits need to be scaled back for new hires, he said.
But he is also unapologetic about the size of his payout. “I can’t comment on what 44 years is worth,” Wellman said. “But I can certainly see how in this economy the general public would see it as excessive.”
Steven Frates, director of public policy research at Pepperdine University’s Davenport Institute, doesn’t buy the argument that generous benefits are needed to hang on to talented workers, except perhaps in the case of police officers, who can be difficult to attract and retain.
“They say, ‘Everyone else is doing this; we will lose people if we don’t,’ ” he said. “That is not necessarily true.”
Officials in Newport Beach and Laguna Beach don’t share that conclusion. They recently awarded their lifeguards the same lucrative pension plans that had previously been reserved for police officers and firefighters. They defended the benefits as having been put in motion as part of an extensive contract negotiated before city revenues shrank with the economy. And despite big budget shortfalls, they say the lifeguards have earned the handsome retirement payouts.
“You should see them when there’s a huge swell at the Wedge in Newport Beach,” Newport Beach City Manager David Kiff said. “I wouldn’t want to be risking my life like that.”
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