The State Worker

California local government retirements spike

A quarter more local government employees retired in January than in the same month a year ago, according to CalPERS data, signaling that pension policy, politics and litigation are leading jittery city, county and special district workers to leave their jobs.

Many local agencies in the CalPERS retirement system are gasping for revenue while confronting higher pension costs over the next several years. California’s year-old pension law – which mandates higher employee contributions – has pushed more older workers into retirement. Local government employers are openly talking about cutting pension costs via local initiatives or in bankruptcy court.

All that injects uncertainty into the future of public retirements, said Judi Cutaia a former Davis fire captain who retired three years before having enough service time to receive a maximum retirement. The changes are prodding workers into thinking about leaving sooner with the benefits they have, she said, rather than risking reduced benefits or paying more and more toward them.

“I was scared about what was going to happen,” Cutaia said in a telephone interview. “I saw what Governor Brown was doing, heard about a lot of new laws, about the ballot measures. Every day I was calling my union president.”

Fed up, she retired a little over a year ago at age 50. Two other Davis firefighters left early with her, she said.

The development shows up in CalPERS data as 2,994 retirement applications filed last month by local government employees, up 25 percent from January 2013. It’s a significant statistic because up to a quarter of the system’s retiring members take their pensions in January.

The mass exodus creates openings in a recovering job market, and represents both a loss and a gain for employers. On the downside, local agencies are losing decades of institutional knowledge. On the financial upside, shedding all that experience shifts the personnel expense of high-paid employees to CalPERS and creates lower-level job openings that cost less to fund.

“I tell (employers), ‘You’re losing your brain trust,’ ” said Richard Reed, a labor consultant who negotiates on behalf of unions. “They say, ‘We’re not concerned about the brain trust.’ ”

Some of the rise in retirements comes from graying baby boomers moving naturally out of the workforce. But there’s no doubt that the dramatic increase is fueled by more than demographics.

State retirements, for example, fell 14 percent in January from the same month in 2013, in part because a record number of employees took their pensions the last five years during an era of deep state budget crises, furloughs, hiring freezes, zero raises for senior workers and higher out-of-pocket pension contributions.

But the improving economy and money from voter-approved tax increases have taken hold at the state level. The state budget is recovering. Most state workers now have contracts that include across-the-board pay increases, giving long-time employees reason to stick around.

Local government authorities have been in cutting mode since the 2008 financial crisis. Employee compensation – which can account for most of a local agency’s budget – went on the chopping block. The number of workers employed by California cities and counties fell 10 percent from 2009 to 2012, the latest year for which the State Controller’s Office has compiled data, and payroll spending shrank 4 percent.

Now higher pension contributions are bearing down on local agencies in CalPERS. The fund has announced rate hikes on employers three times in the last two years, including a phased-in increase to cover retirees’ longer life expectancies. Local agencies together already contribute about $4 billion annually to CalPERS, which passed the latest hike without a firm estimate of what it will cost cities, counties and districts when it phases in two years from now.

Patrick Clark, a government labor relations consultant who negotiates on behalf of more than 20 local governments and special districts statewide, said the increased payments for pensions have his clients scrambling for how they’ll pay the bill.

“It’s almost like 2008 all over again,” Clark said, “but this time it’s CalPERS.”

Meanwhile, a 2013 law that made changes to state and local public pensions gave agencies and employees until 2018 to shift half of normal retirement costs to employees. Some local agencies have paid their employees’ share of benefits instead of granting raises, so the state-mandated pension-cost sharing will take a sizable chunk out of their take-home pay.

Many employers are negotiating the 50-50 payment split now, hoping to phase in the higher employee costs instead of hitting workers with it all at once.

“It’s the main topic of every contract I have coming up right now,” said labor consultant Reed. “They don’t want to wait.”

Reed said some employers are talking about raising salaries to offset the employee contribution costs. But workers who are eligible to retire are watching the talks unfold with trepidation and “are getting out,” he said. “And if they’re not getting out, they’re preparing to get out.”

Some employers aren’t waiting until 2018 to shift more pension costs to workers. Last summer, the Roseville City Council stopped paying the 9 percent employee share for its police officers despite their union’s protest. Another 3 percentage-point increase is coming, said Phil Mancini, president of the Roseville Police Officers’ Association.

“Once that happens, there will be an argument to be made for retiring,” Mancini said. “Guys will do the math.”

A CalPERS spokeswoman said the fund has not analyzed the short-term impact of higher employee pension costs on retirement trends. CalPERS board member J.J. Jelincic said that it’s not difficult to connect the dots, noting that when state workers started paying more for their pensions a few years ago, “you saw a big pop in retirements.”

Finances and state law aside, court fights and politics have added uncertainty to the local pension outlook.

Pension debt is at the heart of bankruptcy fights in Stockton and San Bernardino. Moody’s Investors Service earlier this month compared those cities to Vallejo, which continues to struggle with its pension debt after emerging from bankruptcy.

The city of San Jose recently lost a court fight over whether current employees could be forced to chose between a cheaper retirement plan or to pay more to keep their current benefits. Parts of San Diego’s voter-approved pension law have been implemented, while others are tied up with union challenges. Ventura County is talking about a November ballot measure to put new county employees into a 401(k)-style program instead of a traditional plan with guaranteed payouts.

While a pension-change proposal by San Jose Mayor Chuck Reed likely won’t make November’s statewide ballot, “local governments are still engaged heavily in the issue,” said Michael Shires, a state budget expert at Pepperdine University. “Employees know it.”

Retired Davis firefighter Cutaia said the political wrangling over pensions is “tiring” and exploits a bias against government workers. It also adds one more reason for them exit.

“People will keep leaving early,” she said, “as long as the uncertainty continues.”

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