Community Commentary: Firefighters should contribute more toward their pension costs
I wanted to set the record straight on the city of Costa Mesa’s labor negotiations with the Costa Mesa Firefighters Assn. about how much, if any, our firefighters should pay toward their own pensions (“Contract talks disputed,” Nov. 17).
There have been some inaccuracies in the media and elsewhere, and I thought it was important Costa Mesa taxpayers know exactly what’s happening.
Little more than year ago, the Costa Mesa Firefighters Assn. renegotiated its contract with the city. The pension costs, formulas and percentages can be confusing to those not fluent in government language. So for this piece, let’s assume we are talking about per-year retirement costs for a firefighter who makes $100,000 annually in a pension-eligible salary.
As part of the deal, a firefighter started to pay $6,000 ($5,000 in new contributions, in addition to the $1,000 he had been paying) toward his retirement. The taxpayers contributed $40,404 — and were on the hook for the predicted pension-rate increases.
For those doing the math, you are not mistaken: For every $100,000 earned, a firefighter’s pension costs an additional $46,404. The $100,000 example is a little lower than the average pension eligible salary of Costa Mesa firefighters in the current fiscal year ($103,128); the average total compensation is $155,783.
In September, the city asked the firefighters’ association to have its members continue the $6,000 contribution to their own retirements through the length of their current contract, which ends in April 2015. The added contribution would save the city $500,000 annually.
The firefighters countered with an offer to continue to pay the $6,000 for just three more months.
At this point, two things happened.
First, the City Council decided to hire an experienced labor negotiator, believing his or her expertise would likely save taxpayers millions of dollars over the course of employee contracts. The employees’ associations all have top-flight attorneys who help them with their negotiations. The city thought taxpayers deserved an even playing field.
Second, the city was given more details about its steeply rising, unsustainable pension costs and massive unfunded pension liabilities. Major structural changes were needed to keep the city fiscally healthy, a problem most California cities are facing.
The council’s direction was to reduce pension-related costs so it could continue and/or restore traditional city services and pay down $221 million in unfunded liabilities — a debt that would be unfair to pay on to the next generation.
Based on need for significant help in reducing pension costs, the city rejected the firefighters’ association offer and asked them to pay $15,839 — the maximum amount employees can contribute to their pensions. The taxpayers would still be paying about twice as much — $30,565 — and be on the hook for all the predicted cost increases.
The firefighters countered with an offer to pay $6,000 through June 30.
And that’s where the negotiations stand, though the firefighters are no longer paying $6,000 total because the one-year agreement has expired. But they are paying an already-agreed-upon $1,000.
For a firefighter who makes $100,000 annually, the taxpayers are now paying about $45,000 toward his pension costs, and he’s paying $1,000. Projected over a 30-year career (and yes, this is a simplification, but still a powerful illustration), the taxpayer would pay $1.35 million toward the pension, and the firefighter would contribute $30,000.
The city and taxpayers now need real help from city employees in paying for these retirements. The good financial times, which some thought would last forever, are gone for the foreseeable future. Costa Mesa and any other city can no longer afford to pay $45,000 annually toward a pension of a firefighter who makes $100,000 per year, while the firefighter only contributes $1,000.
A 50-50 split on pension contributions would be generous in the private sector, where retirement age is usually 65 (firefighters can potentially retire at 50 with 90% of their pay). Costa Mesa taxpayers now have a 45-1 split with their firefighters. The city is asking the firefighters to pay about a third of the cost.
Who outside the public sector wouldn’t think this was an amazing deal?
This problem is just basic math. Employee compensation costs, including pensions, now represent about 72% of Costa Mesa’s General Fund. Pension costs alone have risen from 5% of the General Fund a decade ago to about 17% today and are projected to rise sharply over the next several years.
What’s not appreciated by the firefighters’ association is that structural adjustments made now to the pension system will ensure that their members’ retirement checks will keep coming in the years ahead. Unsustainable means just that — at some point, the city will simply run out of money trying to fund the pensions.
Neighboring Santa Ana and cities across California are finding this out the hard way. It doesn’t have to be like that in Costa Mesa.
No matter how much they love their firefighters, Costa Mesa taxpayers simply can’t afford to underwrite virtually all of the sharply rising costs of their pensions. And to make the formula even more fiscally unsound, firefighters can retire and start collecting 90% of their salary as early as age 50.
Public-employee pension reform needs to be undertaken in a variety of areas, but right now in Costa Mesa the issue at hand has to do with firefighters’ contributions to their own pensions.
For union officials, there’s been a major disconnect between the new fiscal reality brought on by the recession, the unsustainable pension system, the mood of the public and their offers during negotiations. We need labor contracts that structurally address the pension problems we’ve brought upon ourselves.
The private sector has already made many of these same wrenching adjustments: layoffs, pay cuts, hours reduced, benefits slashed, pensions halted, 401(k) matches stopped. Companies — most of them small businesses — have had to figure out how to work with reduced revenues or perish. I’ve experienced this first-hand as a local restaurateur.
So now, the city of Costa Mesa has to answer this question: How much should its firefighters contribute to their own pensions, knowing that taxpayers will be picking up the remainder of the cost?
GARY MONAHAN is the mayor of Costa Mesa.