Pension reform is not exactly a hot topic at my dinner table.
In fact, I can assure you that the words have never been mentioned at any family meal. Tuesday evening’s Cost Mesa City Council study session about the city’s unfunded public pension liabilities revealed that it’s not an easy subject to swallow, let alone fully digest.
Hired by the city to shed some light on what we’re really facing, Stanford economics professor and former state legislator Joe Nation painted a bleak picture for the four council members and dozen or so community members in attendance.
In Nation’s view, the California Public Employees Retirement System, the state pension fund in which our city employees participate, is a flawed system that pushes costs far into the future and unreasonably relies on robust returns on its investments.
Nation also takes issue with the defined-benefit program’s rules, which he argues would not pass muster in the private sector.
Presently, Costa Mesa is on the hook to pay $198.4 million in employee pensions and $35.5 million in retiree health-care liabilities. With 65% funding in place for pensions and nothing accumulated to cover the healthcare liability, Costa Mesa is poorly positioned.
While he offered comparisons with neighboring cities, Nation concluded that regardless of our relative position, we are all in pretty bad shape.
The reasons for these circumstances are numerous and complicated. There’s no point trying to assign blame to any one party; all share some culpability in contributing to the situation.
Past councils approved enhanced benefit packages when the pensions were over-funded, employees successfully negotiated for additional benefits, CalPERS relied on aggressive discount rates for its investments, and a perfect storm on Wall Street almost crippled the national economy.
After listening to Nation’s two-hour presentation I realized the gravity of the situation is daunting. His most insightful comment, near the end of the presentation, identified what’s really at stake here.
“If you don’t deal with this,” he soberly warned, “you won’t have anything that you care about.”
Public safety, infrastructure, recreation facilities and programs and other essential city services and assets will be in jeopardy.
According to Nation, the way for any city to move forward is through benefit reductions, greater cost sharing and new revenues (e.g., taxes).
Banking on higher rates of return from CalPERS is simply insufficient. Unfortunately, there are serious systemic and legislative obstacles that make instituting significant changes difficult.
For Costa Mesa, solving our unfunded pension liability problem will require creativity, collaboration and patience from our entire community.
Our elected officials will need to put culpability and partisanship aside and encourage everyone to participate in a global solution. Employees will likely have to make some concessions on benefits and residents and businesses will need to seriously consider service reductions and/or tax increases.
As well, it will take a tremendous amount of leadership to pull us, collectively, out of this situation. This cannot be remedied overnight — it demands long-term thinking, diplomacy and skillful campaigning in the community.
Perhaps our council will take the lead in building a coalition of cities to lobby Sacramento to revise Assembly Bill 340, the recently enacted state pension reform bill. Ultimately, our council has the unenviable challenge of framing the issue in a way that all Costa Mesans care about, and are invested in, the outcome.
I applaud the council for tackling a complex and complicated subject. Hearing from experts, increasing public awareness and understanding our options is a good first step. Knowing that we do not have complete control over the situation is certainly frustrating, but it should not dissuade us from working diligently to arrive at a meaningful solution.
If we sincerely care about what we have here in Costa Mesa — which will be on full display during our upcoming 60th anniversary festivities — then solving this problem is not only important, but also imperative.
JEFFREY HARLAN is an urban planner who lives on the Eastside of Costa Mesa.