Pension Costs + An Overview

By Bill Kampe

Pension costs are a very real burden on our city budget. There are things we can do...and are doing. There are some things we should not do.

Our CalPERS pension costs are a large and growing part of the city budget. These costs draw away from other city services such as the library and street maintenance.

The Situation

In 2001 Pacific Grove and many other cities gave public safety employees a "3 @ 50" retirement plan. That means an employee can retire at age 50 with pay up to 90% of their highest working salary, based on 3% credit for each year worked. Back then, high stock market returns made pension costs look very low. Now the real costs of that plan have become very apparent, especially with our slow economy. Today our pension obligations are underfunded. CalPERS is charging cities a high rate on salaries in an effort to catch up. These high charges drain city budgets. For employees, future payouts for retirement benefits are in jeopardy.

Objectives

This topic is serious and requires serious solutions. We must:

• Reduce our exposures to CalPERS pension costs where possible using all practical tools.
• Control overall city costs during the transition period while longer term solutions are implemented.

We have several tools to manage pension costs, and Pacific Grove is pursuing them aggressively:

• Outsource - however reluctantly, to contractors who do not carry CalPERS pension liabilities.
• Share services - We can consolidate overlapping and redundant capabilities to reduce salaries and thus pension costs. We are doing this for some fire, police, and building services.
• Change state law - Working with other cities and the League of California Cities, Pacific Grove has been advocating needed changes in state law. The pension reforms just announced by Gov. Jerry Brown include many of the reforms we have advocated. There is more to do.
• Negotiate - Labor contracts are set by a negotiating process guided by state law. We must negotiate with our unions with both conviction and respect.

As a candidate I would like to tell you that we can make the burden of our pension costs go away in a bold stroke. It would not be the truth. You will hear that there were defects in the way the 3@50 program was implemented back in 2001 and 2002. Part of that is true. It would be expensive to litigate, and it is extremely unlikely that a court would use that defect, so many years later, to rid us of our pension obligations.

You may hear we should seek bankruptcy. That is a poor choice, while we have other choices, and we do. More on these topics will come in a separate issue paper.