In November 2014, California State Controller John Chiang published a report calculating the total value of local and state public pension programs’ unfunded pension liabilities.
Chiang reported the increase in municipal and state pensions’ liabilities exceeded the rise in assets by $191.7 billion.
In 2003, California public pension programs had overpromised benefits by $6.3 billion, or about $178.72 per resident. In 2013, liabilities exceeded assets by $198 billion, or about $5,210.53 per resident.
Responding to Chiang’s report, former San Diego City Councilman Carl DeMaio (R-Rancho Bernardo) is joining former San Jose Mayor Chuck Reed (D) to launch a 2016 statewide ballot initiative that aims to tackle the pension crisis by reforming the state’s 130 taxpayer-funded pension programs.
DeMaio says public pension decisions respond to political pressure instead of market performance.
“Politicians have bowed to the pressure of the government union and have voted to spike pension benefits for state and local government employees without paying for it,” DeMaio said. “This has created billions in debt that taxpayers are now on the hook to pay off.”
DeMaio says turning defined-benefit pension programs into defined-contribution programs, similar to those enjoyed by taxpayers in the private sector, is one way to help solve the looming unfunded liability crunch.
“Ideally, we would move government employees into the same retirement packages that taxpayers have, which would include 401(k) accounts, privately insured annuity programs, and Social Security,” DeMaio said.
DeMaio says holding public pension funds to the same financial standards to which private funds are held is an important part of controlling costs.
“The only solution to the pension crisis is to reform pension benefits so they are in line with the local labor market – no better, no worse – and require that politicians pay for these benefits when they are due,” DeMaio said. “No more accounting gimmicks, no more payment holidays.”
Risking Public Safety
Independent Institute Senior Fellow Lawrence McQuillan says unfunded pension liabilities are also becoming a public-safety issue in California.
“At the local level, the worst-case scenario is cities and counties cutting police and fire services to pour more money into pensions at the expense of public safety,” McQuillan said. “The Oakland Police Department no longer responds to 44 different crimes because of police cutbacks that were authorized in order to save money and divert the savings [toward paying for] pension plan[s].”
McQuillan notes California cities Vallejo, Stockton, and San Bernardino have already declared bankruptcy due to soaring pension costs, and other cities may follow.
“Some predict Los Angeles will file for bankruptcy in the next few years due to its runaway pension costs,” McQuillan said.
Rudy Takala ([email protected]) writes from Washington, DC.
Joe Nation, “Shrinking Services: Public Pension Costs and Their Impacts on San Jose,” Stanford Institute for Economic Policy Research: https://www.heartland.org/policy-documents/shrinking-services-public-pension-costs-and-their-impacts-san-jose/