Paul Kitagaki Jr. / pkitagaki@sacbee.com

San Jose Mayor Chuck Reed

Editorial: Pension reform comes at a price

Published: Friday, Jul. 11, 2014 - 12:00 am

Finally, Sacramento police officers will start paying into their own pension accounts – a positive step for the city’s financial stability.

The new contract ends a yearlong standoff with City Hall and brings police in line with the city’s other major employee unions.

But the deal demonstrates yet again that significant savings from pension reform in California won’t come quickly or easily, and that powerful public safety unions can extract costly trade-offs.

Under an arbitrator’s decision – reached last month but not made public until Thursday after The Sacramento Bee’s editorial board asked – police officers will pay the full 9 percent employee share into the California Public Employees’ Retirement System, plus 3 percent of the city’s contribution, by next July.

In return, officers will get a 9 percent pay increase over three years; sergeants will receive 7 percent. The city says they are underpaid compared to their peers in the region.

According to the city, the new contract will save it about $1.25 million in 2014-15 and $2.24 million in 2015-16. But as the pay hike fully kicks in, the city will face a net cost of $300,000 in 2016-17 and $1.59 million a year after that, though, obviously, the cost would be higher with pay raises and no pension concessions.

The new contract expires in June 2017. City Manager John Shirey says the Sacramento Police Officers Association deserves credit for being the only bargaining unit to pay part of the city’s pension share, and for taking away expensive retiree health benefits from new hires – a concession that city firefighters have refused to make. When they agreed to pay into their pensions in 2012, the firefighters union received a 5 percent raise.

Even with the pension deals, the city’s CalPERS bill continues to rise. City Hall’s finances are being shored up by a half-cent local sales tax increase approved in 2012, but that $31 million-a-year windfall is set to end in 2019. City officials are warning of big budget deficits again by 2019-20, largely due to growing pension obligations.

Sacramento’s plight is echoed across California as the irresponsible pension boosts in the late 1990s and early 2000s come home to roost. Meanwhile, the recent rollbacks will take time to cut costs.

For instance, the pension reform the Legislature passed in 2012 capped benefits and required higher contributions by local government workers – but only for employees hired on or after Jan. 1, 2013. So while CalPERS estimates the measure will cut state and local pensions costs by $42 billion to $55 billion over 30 years, much of the savings will be in the later years. And more immediate savings will be reduced by higher CalPERS contribution rates on the way for local governments that will be phased in over five years.

That’s why pension reform advocates are still sounding the alarm and urging Gov. Jerry Brown and the Legislature to take more action. San Jose Mayor Chuck Reed, who was making the rounds in Sacramento this week, is trying to build support for a possible ballot measure in 2016. That could put pressure on policymakers. So might Stockton’s bankruptcy case; a federal judge made headlines when he said Tuesday that employees and retirees could have their pensions reduced.

But as Reed pointed out to us, we certainly don’t want more cities to have to file for bankruptcy to rein in pension costs. Public pressure will build, he said, as the CalPERS rate increases hit home and cause noticeable cuts to public services, or lead to requests for more tax hikes.

That’s something residents and taxpayers want to avoid. But in Sacramento and elsewhere, that’s clearly on the horizon unless more pension reform gets done.

Read more articles by the Editorial Board



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