Retirees and city workers in Stockton – and CalPERS – dodged a bullet with a judge’s final ruling in the city’s bankruptcy case.
Judge Christopher Klein on Thursday approved Stockton’s plan to repay its creditors without reducing pensions. That undercut, at least for now, his own groundbreaking decision on Oct. 1 that Stockton could reduce its payments to the California Public Employees’ Retirement System if it wanted to do so.
But the victory may be fleeting. There can be no denying that CalPERS and cities across California still face a huge pension problem.
Pension payments by local governments in California have almost tripled in the last decade – from $6.4 billion in 2003 to $17.5 billion in 2013, according to the state Controller’s Office. Scarier still for taxpayers, the unfunded liabilities of cities and counties mushroomed from $6 billion to $198 billion.
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When those bills eventually come due, some combination of higher taxes, reduced services and lower benefits will almost certainly be unavoidable. While Stockton may be an extreme case, it is certainly not alone in paying the burden of too-generous pension promises.
You need look no further than Sacramento. City Hall has reached a new deal with its largest employee union that promises some long-term pension savings. That’s the good news for Sacramento taxpayers.
The bad news: Short-term costs, combined with rising pension payments, will put the city closer to the edge of a fiscal cliff. This year, the city had its first budget surplus in seven years. As soon as 2016-17, services and staffing may have to be cut again unless there’s significant growth in tax revenues, a staff report warned this week.
The tentative contract with Local 39 – which represents more than 1,300 city employees – calls for workers to pay another 1 percent of their salaries into their pensions, bringing their contribution to 8 percent, and pay more for health insurance.
In return, employees will get salary increases totaling 7 percent before the contract expires in June 2017, plus a “catch-up bonus” because the previous contract expired a year ago. The ongoing cost of the new contract is $3.7 million a year.
City Council members are to be briefed Thursday on the agreement and one with the much smaller Local 447, and vote on them Nov. 13. There were similar trade-offs in a new contract with the police union, decided by an arbitrator in June, under which officers pay into their own pension accounts for the first time.
When the cost of the Local 39 and police contracts are combined, the city is staring at a projected general fund deficit of more than $6.6 million in 2016-17 and $8.5 million in 2017-18. The hole will get deeper once Measure U, the half-cent sales tax increase, ends in 2019, when it is expected to generate about $36 million a year.
Beyond that, the city has unfunded pension and retiree health care liabilities of nearly $1 billion.
While it isn’t as sexy as the new arena and downtown development, this core issue of financial stability needs the continued focus of Mayor Kevin Johnson. Whether he wins more power in Tuesday’s election or not, pensions must be high on his to-do list.