With no thought to long-term financial consequences, California politicians, both state and local, have saddled taxpayers with hundreds of billions of dollars in debt for pensions and retiree health care.
No one truly knows the extent of what are called “unfunded liabilities,” because official estimates of the debts, around $200 billion, assume pension trust funds will achieve earnings that are likely unrealistic. Meanwhile, almost nothing is being put aside for rapidly increasing health care obligations.
In a rational world, the situation would demand tough, even painful, steps to close the funding gaps by modifying benefits and/or increasing “contributions” – a term of art – from taxpayers or employees themselves.
Recently, there have been a few baby steps in that direction, such as a new plan to slowly close the teacher pension gap.
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However, retiree benefit liabilities continue to increase and the bankruptcy of three cities, in large measure because of unsustainable pension costs, have underscored the looming problem.
The dynamics that created the problem – expedient actions by politicians, pressured by powerful unions, to fatten benefits without steps to pay for them – make decisive action unlikely, as demonstrated by the collapse of the latest attempt at a big pension fix.
Former San Diego Councilman Carl DeMaio and former San Jose Mayor Chuck Reed, who pushed pension overhaul measures in their cities, have been trying for years to get traction for a statewide pension reform ballot measure.
On Monday, they suspended their latest effort, citing a lack of several million dollars to qualify a measure for the November ballot and tens of millions of dollars more to campaign for it.
The stark reality is that within the state, there are no deep pockets to finance such a campaign. However large they may be, fast-growing pension and health care liabilities don’t discomfit any major interest groups, since their greatest impacts are on local governments, especially cities, rather than on state government.
Any reform campaign would be dependent on money from one or more wealthy individuals, probably from out of state, and it hasn’t materialized.
Conversely, any broad retiree benefit reform effort would draw implacable, high-dollar opposition from unions.
DeMaio and Reed say they hope the atmosphere will be different in 2018, particularly if the Supreme Court severely limits, in a pending case, the ability of the unions to raise political campaign money.
It’s a faint hope at best, even if the unions were to lose in the Supreme Court. More likely, unfunded liabilities for retiree benefits will continue to grow as baby boomer employees exit, politicians will continue to make symbolic changes that slow the growth only slightly, and the day of reckoning will be postponed even more.
And, by the way, the pension reforms that DeMaio and Reed achieved at the local level are being dismantled in their absence.