Cities in California are under particular pressure because it is so difficult to raise property taxes in the state, and because in 1999, at the height of the tech bubble, the Legislature voted for a huge benefit increase allowing, for instance, police officers to retire at age 50 with 90 percent of their salaries.
“We have this all over the state of California,” said Karol K. Denniston, a bankruptcy lawyer with the firm of Schiff Hardin in San Francisco, who is advising a number of local taxpayer groups. “There is growing recognition that there is not enough money to keep doing what they’re doing, and something’s got to change.”It's a huge issue: people leave at 50, with massive pensions, and then go on and get another job. One of my brothers was annoyed when his neighbor, a retired firefighter not much older than my brother, said "You're always at work. Why do you work so hard?"
My brother answered, "To pay your pension."
Another brother, himself 60, interacts with the agency that fights wild fires. He points out there's a consequence beyond just the financial effect of these early retirements. The experienced hands, with years behind them, take the retirement and go. This means that many of the managers are relative youngsters, who haven't seen that many fires. The years of experience go out with the retirees. And that can have major consequences.
Cities throughout California are in trouble because of this. They simply can't afford to maintain infrastructure or services because the politicians and the unions colluded in an unsustainable practice. The result is, everyone is getting screwed. And it's only going to get worse.
Update: I'm generally in favor of unions, but I do have big problems with this, and don't think I don't blame the Democrates. I also have problems with how the powerful prison guard's union dominates our politics in this state, which has led to skyrocketing support for prisons and collapsing support for education.
I'm not saying people shouldn't have pensions. I'm saying that a system where they retire at 50 is a problem. I'm saying a system in which we can't afford to pay our current policemen because of what we pay the retired policemen, is a problem. Many cities in CA have unfunded pension obligations, which to fund fully requires that they cut current staff and current services. Cities like Vallejo and Stockton have gone into bankruptcy. Vallejo is a very grim place where neighborhood watch groups try to cover for the police, because the PD has been cut so deeply to cover pensions, and don't even think about a library. It's a libertarian nihilist's dream and a liberal's nightmare.
Update 2: I'm 50, and I'd love to retire. But I can't retire before 67, and it won't be with a pension or medical insurance, but a 401k and medicare. Because I got an advanced academic degree and additional post-doctoral training, I didn't enter the "real" work force and start contributing to a plan before my 30s, prior which time I was paid next to nothing so no savings. Because I stupidly became an academic, I never have or will made a salary commensurate with all that training. And because I'm a scientist, and the government no longer wants to fund science, I've taken a 25% pay cut. So yeah, I'm not keen on driving through potholes, living with a part-time library, and paying generous retirement benefits to someone my own age, who is not disabled and who could still be working.
13 comments:
I know my father's Example A of the problem (retired from the CA DeptFish&Game, age 61 . . . in 1981!).
But it's also his pension that's keeping me from being homeless on the streets (I bet I'm not the only adult w/ an elderly parent c.2013, in this situation).
When people raise the issue over the "over-generous" pensions of government workers, that I always go back to Bigger Questions: Aren't private "pensions" (such as they are now) TOO LOW? Aren't our taxes on the SuperRich TOO LOW, and couldn't the former be balanced out by the latter?
If we had a wealth tax on those making more than a BILLION dollars (being prepared to conviscate real property of those who try to flee the taxes!), we could help balance our priorities Post-Haste.
...but then I'm just a pinko commie, so the Real World just ignores me.
I don't think pensions per se are the problem, but they have to be done sensibly. And retiring at 50 (or 61....) with a massive pension isn't sustainable.
There are no private pensions any more, for the vast majority of us.
Many California cities basically can do very little in the way of services because such a huge part of their budget goes to pensions. (Check out Vallejo, or Stockton).
Of course we want people who retire to be able to live comfortably. But if as a taxpayer, I'm paying disproportionately for pensions of past police officers, and not for present ones, let alone libraries and bridges, then there's a problem in how the system is set up.
California, at least in the L.A. area, has had a real problem of people grossly taking advantage of the public pay and pension system.
For example in Vernon, a small city next to L.A., which is almost entirely industrial with only few residents, had a city manager who was paid $911,000. His pension on retirement was over $500,000. The pension system cut it down to $115,000. He's sued for the difference. Poor baby! See Man getting California's biggest public pension sues to keep it.
Virtually no one in the private sector has a pension anymore. (The only exception I know of are Episcopal priests and others covered by the Church Pension Fund). The rest of us got moved into 401(k)s long time ago. One of the ideas behind 401(k)s was that the companies would essentially contribute what they were accruing for pensions into the 401(k)s. That really doesn't happen anymore. Retirement in the private sector is essentially whatever you take out of your own salary and put into an IRA or a 401(k) (plus social security).
The idea behind generous public pensions, at least in California, was to make up for low public salaries, compared to those in private sector. That differential between the public and private sector doesn't really exist anymore, at least in California.
I'm by no means opposed to public unions. At the moment, they're the only folks who can financially oppose the millions of dollars of political contributions of the Koch Brothers and their allies, now permitted under the Citizens United case. But they're going to have to give up some on the public pensions. As IT says, public services are really suffering because of the public pension obligations and the only alternative to give-backs are municipal bankruptcies. Pick your poison.
"There are no private pensions any more, for the vast majority of us."
Because there are almost no unions in private industry anymore! And THIS is the problem. Begrudging public sector unions is the proverbial monkey pulling monkey back in the barrel, when one tries to climb out [Or the great Wobbly cartoon of the black worker and white worker slugging it out, while Mr Moneybags smiles from On High]
"don't think I don't blame the Democrates": seriously, IT? That's "What's the Matter with Kansas?"-type foolishness.
Whenever someone tells me of "something we can't afford (anymore)" my hermeneutic-of-suspicion alarm bells go off BIG time. Priorities! What are the priorities here? WHO says we can't afford pensions? WHO says we have to rob young cops, to pay older cops? [Why aren't we "robbing" the Koch Brothers?]
We accept FAR too much capitalist cr@p as "The Great Unchanging Unchangeable". I call bullsh*t.
Sorry, JCF, Bullsh*t is someone retiring at 50 with a 90% pension.
I live in San Diego, where it was Republicans, not Democrats, who promised a big pension plan and then refused to pay for it, kicking the can down the road in pure political irresponsibilitiy. We've been dealing with the "unfunded pension" liability for a long time.
yes, I do blame the politicians for not making hard decisions, and the unions, for pushing something unsustainable. I mean, REALLY???
That does not mean that the gross inequality of the economy and the fact I paid more taxes last year than GE, is not a problem. Of course it is. But we aren't going to become a socialist country, because the majority of this nation is essentially moderately Republican, not liberal/progressive.So we need to focus not on what SHOULD happen, but what CAN.
That said, how do we solve the presenting issue? Municipalities in CA can not afford to pay their pension plans and maintain services, and part of this is because the pensions are far more generous than they should be (like retiring at 50.)
How, exactly, do you suggest we find the money to maintain sensible pensions and fund necessary services, in our current political reality?
90% of *what*, IT? There are some people---childcare workers, for example---I'd like to see retire at 50 w/ 200% of what they've made!
You're just not thinking BIG enough. You're accepting too much of "That's just the way it is/some thing will never change (DON'T YOU BELIEVE THEM! ...thank you, Bruce Hornsby)
"Current political reality": F#CK IT. Change it! Fatalism is *killing* us. I'm sure this is not the first time you're heard this: "Don't Mourn, ORGANIZE"!!!
"the majority of this nation is essentially moderately Republican": I don't accept that. Sure that's what FOX says---and what they *push* relentlessly. But when progressive *policies* (not parties, not persons) are polled on, they ALWAYS win. There is a profound DISCONNECT between Americans' *values*, and the party policies they vote for. That's why we need organizing!
Now, since disagreeing w/ you is HIGHLY disagreeable to me, IT, I will shut up and go soak my head...
Yup, we aren't going to agree. But we're still friends.
:-)
The "current political reality" in California includes the fact that local elective bodies, like city councils, do not have the right to impose or increase virtually any taxes or fees. Instead, imposing or increasing virtually any tax or fee must be approved by the electorate -- by a two-thirds majority.
Political reality -- it virtually never happens. As a result, there's a fixed pot of money that's almost impossible to increase and fixed pension obligations that must be paid. Between paying a retired cop's pension and paying an active cop, you have to pay the retired cop's pension first. If you don't have enough to pay the active cop after you pay the retired cop's pension, you lay the active cop off.
Crappy political reality? You bet. But the voters would have to pass a state constitional amendment to get rid of it.
Retirement at age 50 at 90% of your salary is simply absurd. Look at the life expectancy tables. A person who begins work at 20 and retires at 50 will, on average, live for 79 years. A person will have worked for 30 years for 100% of their salary over that time. That person is going to receive a pension for 29 years at 90% of their income. Unless the pension is fully funded at the time the person retires, this requires an enormous increase in persons in the work force to pay for the pensions of retried persons. This is simply unsustainable.
This article places the blame pretty firmly with the politicians who are enabling the "financial wizard" who are looting the country. But regardless of how we got here....how do we get out?
http://www.rollingstone.com/politics/news/looting-the-pension-funds-20130926
The problem is that politicians don't hold themselves to the same standard that they hold private employers.
My own pension accrual was cut this year, and the premium rate increased. This is because of the poor market returns in the last few years, and the plan is technically insolvent (if it were liquidated today, there is not enough money in the plan to pay all the benefits members are entitled to). If the employer doesn't correct the situation within a set time limit, government regulators will step in.
Public sector pension plans, for the most part, do not have to worry about solvency regulations, because any shortfall can be covered by taxation. Thus, it is very easy for politicians of all political stripes to promise gold-plated pension benefits to public workers (and platinum-plated benefits for themselves) because they don't have to include the real cost in their budget. The bill will come due years in the future, by which time they hope to have retired.
Wow IT you ask tough questions.
Pensions should be funded by contributions from the employer and employee over the work life of the employee. Ridiculous public (or private) pensions such as retiring at 50 at 90% of salary, should not be created. Retirement age and benefits should be adjusted to reflect our much greater life expectancy.
Government needs sufficient revenue to meet its obligations. If it cannot raise revenues to meet its obligations it needs to reduce its spending.
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