Anybody who cares about higher taxes or cuts in basic services should be alarmed about how California’s exploding public employee retirement costs threaten our state’s fiscal future.
Annual pension costs have almost tripled over the past decade and nearly every jurisdiction in the state is facing major increases in their retirement costs. Cal-PERS agencies will see an increase of more than 50 percent. Pension costs for every CalSTRS school district will more than double. In addition, unfunded pension liabilities for California government employees have exploded to $198 billion. Taxpayers are also on the hook for $72 billion in unfunded state retiree health care costs and, unlike pension obligations, there is no money set aside to help pay them.
These are just some of the alarming pieces of information recently revealed by state officials, providing a sobering look at the impact of public employee retirement costs on California. Despite public employee unions’ efforts to minimize and dismiss this huge and growing problem, the stubborn facts remain.
Gov. Jerry Brown highlighted this critical issue in his State of the State speech Monday, saying, “We have to face honestly the enormous and ever growing burden of the many commitments we have already made. Among these are the costs of pensions and retiree health care …”
While state controller, John Chiang added public pension data to his
ByTheNumbers.sco.ca.gov website, making it easier for the public to see how rising retirement costs are squeezing out essential services citizens expect and the unconscionable pension debts being left for future generations. Now state treasurer, Chiang recently wrote, “If we refuse to see what is clearly coming over the horizon, not only will we allow retiree health care costs to crowd out other spending priorities, but we will limit our ability to access the capital markets to finance our grossly unmet infrastructure needs — from building new schools to repairing levees to adding more capacity to our overcrowded roads and highways.”
The state Legislative Analyst’s Office also chimed in with its own view of rising retirement costs and debts. They projected an increase in the annual pension payments for state employees from $2.7 billion now to $3.3 billion in five years, and a more than 50 percent increase in annual state retiree health care costs by 2019, from $1.8 billion to $2.8 billion. If we take the prudent step of establishing a trust fund to fully fund our retiree health care plans, actuaries estimate it would cost the state budget an additional $3 billion per year.
Advocates for public employee unions say “don’t worry, the problem will correct itself over time.” However, denial and delay puts us on a dangerous path that will only lead to bigger services cuts and tax increases in the future.
The public already sees these budget strains in broken streets, closed libraries, reduced police staffing and longer fire department response times. Failure to control the skyrocketing retirement costs will doom us to many more years of cutting services and raising taxes. As CalPERS itself recently said: “Employers are reporting that these contribution levels are putting significant strain on their budgets and limiting their ability to provide services to the people in their jurisdictions” and “there is a significant amount of risk being taken in the funding of the system” that might lead to significant future stress.
We need substantial public employee retirement benefits reform to avoid this bleak financial future. While the reforms adopted in 2012 were a helpful first step, they fall far short of what is needed to address a problem of this magnitude and will not be enough to avoid the enormous impacts we will confront soon.
By acting now, and adopting real, meaningful reform, we can protect vital services, safeguard the long-term solvency of our public employee retirement systems and put us back on the path to a more sustainable future.
Our children and grandchildren deserve nothing less. Although reform will be painful, continuing to walk down the politically-expedient path of denial and deferral will be much, much worse. Indeed, the only people who claim we do not have a serious problem are those receiving the unsustainable retirement benefits. The facts speak for themselves and the facts demand action. Significant reforms are necessary and vital to our future.
Reed, formerly the Democratic mayor of San Jose, is an attorney with the San Jose-based firm of Hopkins & Carley.