The city of San Bernardino went bankrupt for a number of reasons: an inefficient system of government, an outdated commitment to providing most services with city employees, an overall lack of control over spending. The effects of the Great Recession certainly only hastened the decline.
A key symptom of these underlying problems has been obvious from the beginning of San Bernardino’s bankruptcy: the rising cost of public employee pensions. According to court filings, the city anticipates annual pension costs ballooning from $19 million in the 2016-17 fiscal year to $44 million by 2030-31.
Lagging investment returns by the California Public Employees’ Retirement System, reduced investment assumptions and increases in the number of retirees and the size of their pensions are all responsible for increased burdens. These costs crowd out spending which otherwise would go to actual services.
Local governments throughout California face this same problem, but have been better able to stave off bankruptcy. Considering that there are few ways for cities and counties to reduce pension costs – aside from bankruptcy, creating lower benefit tiers for new employees or cutting down on their use of public employees – some cities are turning to tax hikes.
Locally, the cities of Hemet, Menifee, Riverside and Temecula are floating potentially lucrative sales tax increases which would increase general fund revenues by as much as roughly 25 percent. Much of that money will go toward alleviating the burden of ballooning pension costs. But as was true in San Bernardino, the pension costs are themselves a symptom of underlying problems.
A recent state audit pointed out the considerable strain pensions have put on Hemet’s budget. Though financially healthier, Riverside and Temecula have also cited pension costs as among their top challenges for at least the next decade. Menifee, already impaired by the loss of vehicle license fee revenue taken away by the state, is sure to particularly feel the pressure.
Regrettably for taxpayers, city officials are often reluctant to show fiscal discipline or search for innovative ways to deliver services until they’ve already dug a deep financial hole. Asking for more money is much easier. It’s something taxpayers need to be mindful of come November.