Debt and Pensions Overwhelm California Municipalities
By Timothy Troutner | 08/09/2012 | California, Economy, Headline, Issues, Pensions, States, Taxes | 9 Comments
Reuters / Kevin Bartram
Now approaching 16 trillion, Washington DC’s debt casts a shadow over federal elections and politics. Perhaps more concerning is the debt facing cities and states across the nation. States and cities cannot print money, and it is not as easy for them to obtain loans. Nations do not go bankrupt easily. Even Greece has found a way to avoid total fiscal collapse for now.
Cities and states have traditionally found it more difficult to run up massive debt. If there is one state that has become the face of America’s debt problem, it is California. While the budget problems of cities in California surely include the cost of providing services and decreases in property tax revenue, extravagant pensions symbolize the fiscal problems of the municipalities.
The numbers are shocking. While not all retirees are earning huge pensions, some retirees are a tremendous burden to cities, even as they have moved on to other jobs. Russia Today records some of the examples:
“Former Stockton Police Chief Tom Morris retired with a $204,000 pension after just eight months on the job. While his California city became the largest in the US to file for bankruptcy, he moved to another city and makes an additional $76,066 salary at a new job.
Two former police chiefs in San Bernardino receive similarly high pensions. Keith Kilmer receives $216,581 annually, while working another job. His predecessor, Michael Billdt, who has no college degree and was accused of trying to bribe an officer to withdraw a union grievance in exchange for a dropped investigation, receives $205,014.”
Most Americans would react to this information with shock and outrage, even disbelief. While not all cities and former employees are part of the problem, fiscal difficulties are pervasive. Reuters explains:
“The city is not alone in struggling to meet pension obligations, particularly for police and firefighters. In other California cities and in municipalities nationwide, retirement costs promised to city employees in good times are wreaking havoc with budgets in the wake of the housing market crash and high unemployment.”
Why is this problem occurring? The problem has to do with city policies, often made in times of plenty. While there are surely examples of out of control private sector pensions, there are few policies that can compare to some of the perks offered by these municipalities. It all has to do with the numbers. The policies themselves allow employees to earn huge percentages of their salaries long after leaving their jobs. Russia Today says:
“Morris’ unusually high pension is not an isolated incident. City councils across California have allowed public safety employees to retire after working for 30 years and collect 90 per cent of their top salaries. But while raking in a sizable pension, they often take jobs elsewhere, while still in their early 50’s.”
A pension that allows someone to earn 90 percent of their salary strikes at the very concept of wage. A wage is given in exchange for labor. The incentive for an employee to do a job and do it well is the knowledge that their work will be rewarded. When pensions reach high percentages, the incentive to continue to work and work well disappears.
These pension earners can retire early and get a job somewhere else. The concept of a pension is to provide a living for a worker after they retire. Allowing retirement early, or after a short amount of time, allows a person to live off taxpayers while earning money at another job.
This is government. These are “public servants” (a term which seems to have lost any meaning it may have had). They are to serve the people. Many of our country’s first leaders served with little or no pay. Even US presidents had to worry about earning a living after leaving office. Now some city employees can live off the taxpayers, while providing no benefit to them.
This problem is made worse by the conditions of California cities like San Bernardino and Stockton. These cities are cutting services and facing bankruptcies, while still paying these massive pensions. These cities are facing fiscal collapse:
“In the past two months, the cities of Stockton and Mammoth Lakes have also filed for Chapter 9 bankruptcy protection, a special bankruptcy provision for municipalities. Stockton, which like San Bernardino has suffered from the housing crash that was particularly acute in southern California, filed for bankruptcy in June, becoming the largest U.S. city to do so.”
While the checks are being sent, libraries and other government services that are used by citizens are suffering cuts:
“While local California governments continue to pay six-figure lifetime benefits for some retirees, they are slashing local police and fire services to make up for the costs. They are also cutting library hours and other public services to keep up with the payments.”
It is time cities got their priorities straight. While it is true that these pensions are obligations cities can’t get out of, these stories should send a message to the rest of the nation. Even when things are going well, city leaders can’t lose sight of reality. Government employees are not fundamentally superior to private sector workers. They should not continue to earn nearly their full salary for years after their work is over.
The fact that the fiscal forecast is sunny for a time does not mean that extravagant pensions are possible in the long run. These are problems that really hit home. A few employees are walking away with the hard-earned money of citizens, who are deprived of the services for which their tax money was intended. Today it is a few cities in California. If the lesson is not learned, local communities are in for a long fiscal battle.
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9 Comments
Gregory Moohn
08.09.2012
As the Executive Director of the Independent Workers of America, I can attest you one and all that I am profoundly pro-union but with the tax structure at all levels being out of whack with reality public sector unions must get a grip and come to the reality that local, state and yes, the federal government(s) can not continue to pay and fund retirements plans as they have in the past. The status quo simply doesn’t work in a globalized economy where markets and competition are in a constant flux.
Melissa Rodriguez
08.09.2012
Pensions are nice, but if you take another job, you should have to forgo your pension. Also, it isn’t right that you can collect such a high pension when you didn’t work 30 years. 8 months = 200K WTF?
Mark Andrew Shoban
08.09.2012
It’s odd how the author failed to mention how public sector unions are hugely responsible and says nothing can be done about extant pensions.
Timothy Troutner
08.09.2012
@timothytroutner
Public unions do have a role, but I place the blame partially on the government employees who have been willing to live of the people while working for only a short time, partially on union leaders for the same reason, but mainly on the city governments who agreed to the policies and now face bankruptcy. Wisconsin and other states have shown it is possible to stand up to unions when fiscal crisis demands it. Unions cannot create policy. They rely on government leaders who are willing to comply (and who benefit from larger pensions.)
As for extant pensions, they are difficult to change. California’s Legislative Analyst’s Office finds
“Raising Current Workers’ Contributions Is a Legal and Collective Bargaining Minefield. The Governor proposes that many current public employees be required to contribute more to their pension benefits. Others have proposed reducing the rate at which current employees accrue pension benefits during their remaining working years. Our reading of California’s pension case law is that it will be very difficult—perhaps impossible—for the Legislature, local governments, or voters to mandate such changes for many current public workers and retirees.”
It continues
“California has decades of case law in this area based in part on U.S. Supreme Court precedent in the area of contract law. During the past year, there has been a substantial increase in public discussion of the possibility of reducing sharply the pension benefits accrued by current public employees and even current public–sector retirees. The motivation for these suggestions seems to be the disparity between public– and private–sector workers’ retirement benefits, as well as a desire to reduce public costs and transfers of obligations to future generations.
We understand these concerns, but the fact is these types of changes often have been attempted by other California governments in recent decades, and in most cases, struck down. Other than increasing current employees’ pension contributions (which may be possible for some governments that have rigorously protected their right to do so), there is almost no viable way to decrease pension costs for current and past employees outside of the negotiating process. Case law in California is exceptionally clear. In fact, California’s protections for public employee pension contracts may be more protective than those embodied in the U.S. Constitution. Reductions in current and past employees’ pension benefits almost always will require that governments provide a comparable and offsetting new advantage in return. Only in cases of extreme emergency does the case law suggest that more drastic changes may be possible and, even then, the changes typically would have to be temporary, with interest costs accruing to the affected employees or retirees during the time of the temporary pension cost reduction. Moreover, even when governments can increase employee pension contributions, collective bargaining and the need to remain competitive in the labor market will lead to salary or other compensation increases that may offset much of the retirement cost savings.
For all of these reasons, it may not be worthwhile for the Legislature to devote significant time during this process attempting to reduce current and past employees’ retirement benefit costs. The debate, in our view, is best spent considering where California’s public retirement systems will go in the future.”
Mark Andrew Shoban
08.09.2012
Those pensions can and should be cut and public sector unions abolished!
Laura Tyler
08.09.2012
Why arent we talking about the cost of taking care of our elected officials for the rest of their lives as well?
Michael Allen Mincy
08.09.2012
The pensions would be solvent if it wasn’t for the Wall Street fiasco -True
Var Enyo
08.09.2012
Stockton had republican leadership as does Bakersfield. They run around pretending to be conservative but they spent big on entertainment complexes(that are going broke), airports(with little use), government buildings etc. and yet they managed to get people like Mark to believe that it was unions and pensions causing it all.
Johnny Ritchie
08.10.2012
Can’t put the FOX in charge of the hen house, i.e., union officials managing/lead of bargaining tables. This would be the same as putting Romney in charge of tax write off havens, i.e., 77,000 welfare tax write off for a dancing horse and he states his #1 plan is to increase the 1% tax write off.