California Forum

CalPERS needs to provide public agencies increased flexibility to deal with pension debt

David Kersten
David Kersten

I have reviewed the finances of hundreds of public agencies in California over the last several years and believe that many more will go bankrupt or become severely handicapped at providing services if they are not given increased flexibility to deal with pension debts.

For example, it has recently been reported that the city of Richmond is likely to go bankrupt within the next few years. The primary cause cited is escalating pension costs.

Many other cities and localities also are struggling to make ends meet in the post-2008 environment, characterized by more limited revenue growth coupled with increasing pension costs that are rising at levels far in excess of what many can afford.

The recent commentary by Rich Costigan (“Criticism of CalPERS is often misplaced”; Viewpoints, Feb. 16) stated that “we need to hold local elected officials accountable” for the pension benefits that employees receive because they were bargained for “with all parties at the negotiating table, and the agreements were approved by elected leaders.”

This statement is misleading because it does not acknowledge the leading role that CalPERS played in locking in existing pension benefits. In 1999, CalPERS officials successfully lobbied the Legislature to approve SB 400, which effectively set a new statewide floor for pension benefits.

These pension benefits were not bargained for at the table, but rather set by the Legislature based on wholly inaccurate cost projections. Most local officials now acknowledge that these pension benefit increases were far more costly than initially thought and they now need the ability to reduce costs in line with what their public agency can afford.

This is not something that can be done under current California law. It would be prudent for CalPERS to request that the Legislature provide its public agencies with increased flexibility to deal with these escalating costs.

Lastly, CalPERS could, without legislative approval, provide public agencies with increased options to control costs which will relieve pressure from budgets and help improve the fiscal solvency of the entire pension system.

David Kersten is the president of the Bay Area-based Kersten Institute for Governance and Public Policy and an adjunct professor of public budgeting for the University of San Francisco. He can be contacted at david@kersteninstitute.org.

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