Sunday, August 21, 2011

Oakland: Don't Worry, the Pension Plan We Closed 35 Years Ago Will be Funded Someday

In today's Contra Costa Times, Daniel Borenstein slams the city of Oakland for its latest foray into reprehensibly foolish public finance. Interested observers may recall that the city worked hard to avoid insolvency during the most recent budget cycle, only balancing the books by backing its unionized employees into $30 million worth of concessions and a laughably dishonest accounting maneuver, "selling" the blighted Henry J. Kaiser Convention Center to the Oakland redevelopment agency for $28 million. Clearly, this is not a city accustomed to planning for the long haul. So, it shouldn't surprise anyone that a city pension fund that's been closed to new enrollees since 1976 is still underfunded. What surprises Borenstein is that the city is still kicking the can on funding it.

At issue is a pension fund for city police and firefighters, which was created in 1951. Since this is Oakland, the plan was closed to new enrollees in 1976 after its costs began spiralling out of control. Since 1981, the Oakland homeowners who inherited this mess have been asked to pay a hefty property tax surcharge to fund the pension. In return for the promise that it would be fully funded by 2016, these residents have paid somewhere between $400 and $1,600 toward these pensions. Again, since this is Oakland, the city's management of the funds led them to extend the expiration of the surcharge out to 2026. And now the city council is pushing a ballot measure to allow future extensions whenever an actuary says they're needed.

The new plan is mainly intended to reduce the city's year-on-year payments towards the pension fund, since it would otherwise have to make sizable payments in the next few years to meet its obligations to retirees. Residents should note that the city has known about its obligations to the fund for a decade and done nothing to plan for it, and that Mayor Jean Quan and the city council have yet to present a serious plan for addressing mounting debts. And since this is Oakland, the ballot measure would likely create a new crisis down the road, as it allows the property tax to expire in 2026 without putting anything in its place.


Post a Comment