First the good news: We’re living longer. Now, the bad news: Longer lives will cost taxpayers billions in added public employee pension costs.
The California Public Employees’ Retirement System board will meet today to decide how the state, cities, counties and special districts should spread that added cost. The answer is clear, though expensive. Delaying payment will only add to the costs for the next generation.
In a letter to CalPERS President Rob Feckner, Gov. Jerry Brown wisely called on the board to reject the staff recommendation that would let the state delay the start of its full payment by two years. The state would pay an extra $3.7 billion over 20 years if the CalPERS board approves a staff recommendation that it phase in full payments over five years, rather than three years, as Brown urges.
“That is unacceptable,” the governor wrote.
Actuaries have concluded that men retiring at age 55 will live an average of 2.1 years longer by 2028. Women retiring at 55 will live 1.6 years longer.
The question before the board is when employers – cities, counties, special districts, the state and, of course, taxpayers who must pay for it – should start paying for longer life expectancy.
Legislators and then-Gov. Gray Davis incurred the debt in 1999 when they approved Senate Bill 400, vastly increasing retirement benefits for public employees. The cost of that overly generous promise becomes clearer with each passing year.
Brown notes the state will have to shell out $1.2 billion more per year to meet its obligations. That means $1.2 billion less for the environment, social welfare, education and other programs. But debts must be paid.
The League of California Cities is urging a looser and less responsible approach than the governor.
In its letter to Feckner, the league requests that the board give cities as many as seven years to fully start meeting their obligations. That’s too long. The CalPERS staff recommendation of a five-year phase-in is more than adequate.
The Bee’s Dale Kasler summed up the situation last week when he wrote that the issue of higher contribution rates is delicate for the CalPERS board, which is dominated by employees and union groups. CalPERS is leery of adding to cities’ financial stress, because that could fuel a further backlash against public pensions.
Mayors and councils understandably seek to put off the reckoning. Perennial cries of fiscal crisis ring hollow. They need to stop putting off the bill, and accept the five-year phase-in of the full cost. Municipalities that can start making full payments sooner should do so.
Knowing what they know now, CalPERS and legislators might not have embraced SB 400. But they cannot undo history. They have no choice but to make good on the bad deal their predecessors struck, understanding that taxpayers must pick up the tab.
The question is which taxpayers. The CalPERS board should make clear that this generation will pay the bill, not the ones who come after.