State and local pension crisis
SAN DIEGO (KUSI) — The stock market suffered its worst loss in history Monday but recovered Tuesday closing up 568 points.
Can the same recovery be said for California and San Diego reversing its pension debt? Certainly not in one day and perhaps not even for a generation or longer.
And the longer it takes, the most costly it becomes for taxpayers.
The reasons are pensions continue to be underfunded and continued losses in pension fund investments during a nine-year boom in the stock market.
A report earlier this year from the California Policy Center, a think-tank that tracks pension reform efforts shows state and local government debt as of two years ago was $1.3 trillion.
The pension debt for state and local governments was $258 billion, retiree health benefits added another $148 billion.
And this doesn’t include deferred maintenance or infrastructure upgrades.
A poor investment strategy is part of the problem. For example, the state’s public employees retirement system or CalPers projected it would return 7.5 percent on its investments last year, but the return was a paltry one percent in a record stock market. CalPers still assume it will be a seven percent return on investment.
The failure of the state to address pension debt comprehensively is a problem for California cities.
Councilmember Mark Kersey on Good Morning San Diego said, “up and down the state cities are paying to CalPers, which is the state pension system, there’s a big problem there, there’s a big problem coming and there’s not an obvious way to fix it.”
The councilmember whose a candidate for the state Senate says the city of San Diego has been more aggressive than the state and other California cities are dealing with its pension debt.
“In San Diego we obviously had our issues. We passed Prop B in 2012 that helped bring some reform and clarity to the system. Our pension system is still going up but there’s still light at the end of the tunnel, and it’s not a train that’s about to hit us,” Councilmember Kersey said.
The city finance department said the taxpayers’ annual contribution to the pension system this year is $325 million, up from $261 million last year.
While Proposition B helped it’s only for new hires who are shifted to 401K pensions, leaving about 70 percent of employees in the old system and they, and retirees are living longer adding to the debt which has increased to $2.5 billion.
“What we’re seeing is cities, the amount of money that they’re devoting out of their general funds to pensions could double over the next 7 years,” Kersey said.
That has consequences for city services as the mayor acknowledges in October.
“That means we’ll have to make some hard decisions as we put together next year’s budget. I continue to be committed to working with the council to minimize the impacts on neighborhoods and our residents,” Mayor Faulconer said.
The $60 million new contract with the cops will also add to the pension debt because they’re under the old system and their raises begin this year when the Prop B reforms come to an end.