Monday, July 18, 2011

Mainstream Media Starting to Pick Up on the Seriousness of California's Pension Crisis

Pension tsunami hazard
Dan Walters of the Sacramento Bee is often referred to as the dean of California journalism, so when he sounds the alarm on something, it's safe to say that it's no longer the sole concern of fringe lunatic bloggers anymore. Two weeks after we echoed Cal Watchdog's warning that pension costs might capsize public finances in the near future, this morning Walters is raising the same red flag in the pages of the Bee. In an editorial called "California's Huge Pension Debt Will Be Jarring," he hits all the key issues: pension costs are already starting to swamp local government budgets in cities like San Jose; the people best positioned to implement meaningful reform – Jerry Brown and the Legislature's Democrats – are precisely the same people whose close ties to public employee unions make them unwilling to push such reforms; and the use of realistic accounting assumptions in estimating liabilities, while vital to understanding the scope of the problem, is a political time bomb. With the Government Accounting Standards Board and the U.S. Congress both poised to require public pensions to report their estimated liabilities under risk-free assumptions, Walters warns us to "[g]et ready for a huge sticker shock, followed by political shock, as the vast size of this potential debt . . . hits home. It may mean that California's state and local governments are upside down, just like many homeowners." Those looking for a preview should glance over the Cal Watchdog piece we referenced earlier: it discusses a number of studies which conclude that California may soon need to designate an astonishing $28 billion toward its pensions in the near future. To put that in perspective, it's almost a third of this year's general fund budget.

The difficulty of turning this problem around is underscored by this piece in the Riverside Press, which shows us that reforming San Bernardino County's pensions is harder than it might appear. In a development that should surprise no one who's followed recent events in San Jose, the County is finding that state law has largely tied its hands as it seeks to cap benefits for existing employees. With annual pension liabilities already in the nine-figure range and rising, and 445 retirees bringing home six-figure pensions, clearly something needs to change. But unless they can persuade the Legislature to amend a 1937 law to allow them to implement new pension formulas, successfully argue that a 1998 state Supreme Court decision involving Ventura County Sheriff's deputies – which found that all cash benefits paid to employees must count toward pensions – was incorrect, and persuade employee groups to negotiate concessions, they're basically out of luck. We wish San Bernardino well in this effort; unlike Sacramento County, they're at least making an effort at fiscal responsibility.

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