Well, tax season is drawing to a close. How did you do this year? I managed to make it through the federal and state rigmarole with my humble bank account still intact, and I should be getting a little extra spending money coming my way soon! Someone’s buying the fancy millet next time she goes shopping.
I wish I could say the same for California’s already cash-strapped counties, cities, and school districts, which will have to pay out the wazoo, thanks to a recent decision from the California Public Employee’s Retirement System (CalPERS).
I get that CalPERS and the IRS aren’t the same thing, but stick with me.
CalPERS is essentially a collection agency that pays the pensions of all retired California public employees. Public entities throughout the state pay CalPERS for more than 1.6 million current and retired workers who are part of the system. That money is then invested in stocks, bonds, and the real estate market, and the returns are used to pay retired workers’ pensions.
The city of Santa Maria, for example, contributes about 15 percent of its general fund to CalPERS each year (or approximately $8.2 million of its $54.7 million budget).
However, a recent decision from the CalPERS Board of Administration will require all state-funded employers to increase those pension contributions substantially. “How substantially?” I assume you’re asking. For Santa Maria alone, we’re looking at an additional $1 million in payments, according to City Manager Rick Haydon.
While talking to one of our staff writers, Haydon likened the pending payment to a “slow moving tidal wave that’s coming toward us. How we get there is the question; the known answer is we have to pay that additional million dollars.”
A higher-up with another city summarized it this way: “It’s going to put us in a world of pain.”
Based on some press releases and a funding risk report from CalPERS I found online, it sounds like the board made its change because it wants to be 100 percent funded within the next 30 years. CalPERS plans are currently funded at between 65 and 80 percent.
I don’t know about you, but that sounds like an astronomical jump to me. It’s a noble proposal, but when have you ever heard of a government system being fully funded? And where is the money going to come from? Our schools can barely afford paper and pencils, and yet they’re expected to fork over millions of additional dollars to help pay for pensions. I’m not a math genius, but something just doesn’t add up.
It sounds like some employers—the cities of Stockton and San Bernardino, specifically—are having trouble with the numbers, too. Both Stockton and San Bernardino filed for bankruptcy last year. City officials and creditors are arguing that the cities’ obligations to CalPERS are pre-empted by federal bankruptcy creditors. I don’t know about you, but fighting for money that isn’t there seems, um, counter-productive?
According to a CalPERS report, if the bankruptcy court rules that a city like San Bernardino doesn’t have to fund the pension system, other struggling CalPERS public agencies could be tempted to alter their contributions through bankruptcy proceedings as well.
So … I’m sorry, my brain just shut down. This is such a major fluster cluck that I just don’t know what to say. How did we get into this mess? All I know is that we’re not going to get out of it by simply demanding that employers pay more money. The entire system needs to be scrutinized, and employers and employees need to negotiate some kind of agreement that would spread the burden more evenly. But that would probably take lots of time and maybe even legal action, so I doubt it will happen.
Luckily, the increase won’t go into effect until the 2015-2016 fiscal year, so employers will have plenty of time to come up with the cash.
The Canary is confused. Help her out at canary@santamariasun.com.
This article appears in Apr 25 – May 2, 2013.
