Tuesday, August 9, 2011

Pension Madness in Vallejo and Santa Clara County

If you needed any reminders this morning of the dangers of government overspending in an era of shrinking budgets (and really, watching the footage of rioting in London, we're not sure why you would), reality is here to offer two of them today.

Given current events, this picture is much less funny than when we used it to post about the SF circumcision ban.

First off, the dictionary defines irony as "an outcome of events contrary to what was, or might have been, expected." In the troubled East Bay city of Vallejo, it's defined as "being forced into bankruptcy by personnel costs, and leaving bankruptcy paying even more for personnel." Observers of the city's travails may recall that it was forced into Chapter 9 by ridiculous contracts it offered its police and firefighters' unions. In the years leading up to its filing, Vallejo's budget shot up at a rate of 11% a year, even as tax revenues dwindled; at this time, 70% of the city's spending went to cops and firefighters. As Ed Mendel describes over at Calpensions, the resolution of the bankruptcy has left many reform advocates disappointed. In short, Vallejo shied away from touching the pensions of current city employees: its renegotiated deals for new hires are similar to the cost-cutting deals other cities have signed in recent months, and its biggest creditor, Union Bank, is taking a $30 million haircut, but current workers will still get the same outsized pensions as before. Even worse, as part of its five-year plan (we're sure that time frame is a coincidence) to stabilize its finances, Vallejo will be sharply increasing its payments to CalPERS over the next few years. Hence the irony.

Second, when you think of the federal Housing and Urban Development authority, you probably think of grants that subsidize the construction of affordable housing. Well, according to the San Jose Mercury News, you're apparently being a little naive: the Housing Authority of Santa Clara County is using those grants to more than double the retirement benefits of its employees. That's right: with a 9-year waiting list for affordable housing in this Silicon Valley county, the housing authority chose to use $16 million in HUD grants to switch from a defined-contribution to a defined-benefit pension structure with CalPERS. As a result, its employees will now be able to retire 10 years earlier than before, and their pensions will automatically increase by 2% each year. We're sure it's a coincidence that the already-struggling authority laid off 90 employees last year.


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