On Tuesday, the Governor of Wisconsin, Scott Walker, survived the much-watched recall election initiated by the state’s public employees. Closer to home the City of San Jose overwhelmingly approved pension reform, Measure B, that gives current city workers “the option of switching to a lower pension or staying in the current plan and paying off pension debt with annual contribution increases” – the city was sued immediately thereafter. While many voters, including me, support serious public pension reform, it is a mistake to blame the entire problem on the unions; doing so would let the other actors – the employees, the elected officials, and ultimately the public – off the hook.
The unions never asked for anything the employees did not want and, for the most part, the elected officials gave them everything they ever got while a majority of the public just ignored the issues; now we are stuck with the bills.
We should not denigrate the unions because they are good at selling their case, attacking their opposition, and buying politicians with money and votes. It’s the American way. Who doesn’t want higher pay, more benefits, better retirement, and rigged work rules? Besides, almost everyone is a member of some – often several – lobbying groups from AARP, to military and veterans’ associations, to recreation organizations, most of them designed to attain individual or group benefits.
We did not get here by accident. A case in point would be the recent “pension reform” at the City of Hollister. The employees and city finally agreed to a second, lower, tier of retirement benefits for newly hired workers; 2 percent at age 60 for non-safety personnel and 3 percent at age 55 for police and fire, but there is no change of the pension rates or taxpayer costs for current members.
According to city staff analysis, it will take 10 to 15 years to get long-term savings of “upwards of one-percent.” By that time, the Social Security retirement age will certainly be 70 and perhaps over 75, so those are still super-duper retirement plans. More importantly, the city is saddled with payments it cannot afford right now and well into the future.
To understand why we are in trouble one has to understand why Hollister’s CalPERS payments are so high. Hollister pays more than 45 percent of its police payroll towards retirement while Watsonville pays only 24 percent; we pay more than 22 percent of miscellaneous payroll towards retirement while Watsonville pays 11 percent. The reason is we bought the retirement packages, but unlike many places we did not pay for them – we borrowed the money and put the bill on the CalPERS cuff. As of last June, we still owed CalPERS $11.5 million of that buy-in, so we have to pay them the amortized cost plus the interest (actually the missed investment return), and that’s expensive.
Either we did not have the buy-in funds or, more likely, the city spent the money on other things. In 2012-2013, the repayment of those loans will add approximately $1.2 million to the regular payments that already cost $1.9 million – $3.1 million total. You can see how repaying the loan is crippling us financially. We have eight more years to pay on the police plan, nine on the fire plan, and 18 on the miscellaneous plan just to get to “regular” CalPERS rates. That is why it was so irresponsible for the city to pay any part of the employees’ share of retirement costs; the city government has been borrowing the money at high rates just to pay its own share.
One cannot blame the unions for our own stupidity.
Marty Richman is a Hollister resident whose column appears Tuesdays.
