Pension debt could sink River City

Jan. 9, 2013

By Katy Grimes

The bad news delivered last evening to the Sacramento City Council is dire: Sacramento has nearly $2 billion in unfunded liabilities, which include pension contributions and retiree medical benefits, most of which have no reliable or stable funding source, as well as excessive bond and lease payments on public projects.

250px-Sacramento_Skyline_(2)

The next phone call should be to a good bankruptcy attorney.

The lingering question that cities like Sacramento refuse to ask: Do the city employees make enough of a contribution after only 20 to 25 years of employment to build up enough principal and interest to pay pension benefits?  Nope.

As a private sector employee, my contribution to my own retirement account has always been 100 percent. After consistently contributing at my last job for 20 years, there is not enough to live on… yet. But unlike a public sector employee, I will have to live on what I’ve saved.

Most public employees only pay between 2 and 4 percent to their pension fund, an amount which cannot support such rich benefits 20 to 25 years later. Taxpayers will end up footing the bill.

“I know these numbers are big and can seem scary,” Sacramento’s City Manager John Shirey, formerly of the California Redevelopment Agency, told the Sacramento Bee. “This is about trying to inform and make people aware that the city does have debts and liabilities, and we are managing them. If we’re prudent in our financial dealings, we’ll be fine.”

Ya sure, we’ll be fine. You betcha.

“Most worrisome, Shirey said, is $440 million in retiree medical benefits that the city has no plan to fund besides annual payments of $11 million from the already battered general fund budget, which funds core city services such as police protection, park maintenance and fire personnel, the Bee reported. The total unfunded liability stemming from medical benefits has grown by $60 million in the past five years.

Everyone in a position of authority in the city knew that these pensions and health benefits were unsustainable. But the city just kept on making bad deals, always sanctioned by the City Council.

Decades of retirement

“What part of the message by Shirley dont you get?” a Sacramento Bee reader commented on the story. “Retirees who have been retired for DECADES!!! You didnt pay in enough over your years of working to ever come close to covering decades of retirement. Geesh talk about feeling entitled Our system isn’t build to have retirees live 30 years after they retire….sorry it’s cruel but true. Do you even have any idea how much health care costs have risen to cover a retiree of 30 years since that person left the workforce.”

This reader has more sense than the Sacramento City Council collectively has.

Sacramento and other California cities cannot continue to pay police officers and fire fighters four times what an average person makes, and then allow them to retire at 50 with full pay. The cost for the ‘decades of retirement’ far outweighs what the employees contributed.

“Sacramento’s practice of paying retirees a flat rate every month is somewhat rare in California, Shirey said,” the Bee reported. “He said cities such as Sacramento came to those kinds of agreements with labor unions – and continued to increase benefits – when finances were better.”

City Councils ignored the dire warnings about the economic recession, and have continued to pay out salaries and pensions like drunken sailors.

“It was all funded with the general concept that the world was always going to be the same as it was 2005, with rising housing values and rising stock market values,” he said. “The last four or five years, reality has set in and cities are getting handed the bill.”

“While Shirey said the unfunded medical benefits were the most worrisome debt facing Sacramento, unfunded obligations also exist in the city’s pension plans. That number has nearly tripled, from $161 million in 2004 to $469 million today, according to a report submitted to the City Council by Treasurer Russ Fehr,” the Bee reported.

“The amount of unfunded pension liability is a result of many factors, according to Fehr’s report. Returns on investments made by pension plans have fallen short of assumptions for half of the years since 2000; retirees are living longer, requiring cities to make pension payments for greater lengths of time; the city took ‘rate holidays’ in which it did not contribute to its pension plans at full scale for a year at a time; and employee benefits have been enhanced as city contributions remained steady.”

It appears that California has indeed already fallen off the fiscal cliff.  And they still don’t get it.

9 comments

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  1. Bob Smith
    Bob Smith 9 January, 2013, 08:50

    “Most public employees only pay between 2 and 4 percent to their pension fund, an amount which cannot support such rich benefits 20 to 25 years later. Taxpayers will end up footing the bill.”

    Have we forgotten that the salaries of public employees are also paid by the taxpayers? Why pretend that salaries come from a different source than pensions? It’s *all* going to be paid by the taxpayers, one way or another.

    Expect the next round of union salary negotiations to include higher pension contributions from salary, but with offsetting raises to salary. Management will crow about how they’ve gotten union concessions on the pension contributions, but the actual underlying economics won’t have changed at all. Money is fungible, and it matters not to the taxpayers whether the money government extracts from them is accounted for in a “salary” bucket instead of a “pension” bucket.

    Reply this comment
  2. Rex the Wonder Dog!
    Rex the Wonder Dog! 9 January, 2013, 09:13

    Sky just fell-AGGAIN.

    Where’s Teddy Steals?? Oh, out playing with Waldo I bet 😉

    Reply this comment
  3. Hondo
    Hondo 9 January, 2013, 09:48

    This bad news was known for a long time. Just like San Berdoo. Remember this last summer when ‘out of nowhere’, San Berdoo only had 240 thousand dollars in the bank( enough to fund one GED educated secretary and her pension) and had to file for bankruptcy. The city council there claimed the city manager ‘didn’t tell them’ how big their debt was for 13 years. They all knew. Just like Sacramento, it is 10 grade math. This website has been screaming about unfunded pensions for years now. They purposely plugged their ears to drown out the truth.
    Well, Jerry Clowns wall of debt is here now, not in 5 or ten years from now. And there ain’t no more money left to steal. Brown is going to have to defund the welfare state and public education to fund the public union state, which, by law, has to be paid first.
    Add in the effects of the huge tax increases just passed at all levels of govt form the feds on down to local cemetery districts, our economy is gonna catch it in the nuts.
    Sacramento can’t possibly say they didn’t know. Katy has been screeching about this for years.
    Hondo

    Reply this comment
  4. Dirtbos
    Dirtbos 9 January, 2013, 11:14

    More fuel for the fire under the financial melt down pot.

    Reply this comment
  5. Sean Morham
    Sean Morham 9 January, 2013, 12:40

    I also believe Sacramento bills out of towners(insurance) for accidents(fire and police services). Of course, I am confident illegals get a free ride. What a F&^(#ng dump! Pitchforks rock.

    Reply this comment
  6. SeeSaw
    SeeSaw 9 January, 2013, 16:05

    The amount that supports the Plan, Bob Smith, is the amount that goes to the Plan, which is required for both the employer and the employee–and it sure isn’t two to four percent. Its more like 19+ percent! The new pension reform legislation requires that every employee pay a specific amount of their own gross pay toward the pension now, if agreed to in the CB process, or by the year 2018, at the latest. The law sets a cap of 8% for miscellaneous employees and 11% to 12% for safety employees. Then there is still the amount to be paid by the employer, which is higher than the employee’s share. The total contributions to CalPERS, including both employer and employee amounts, at my former place of employement, are currently 23% for miscellaneous workers and 49% for safety.

    Reply this comment
  7. GoodDog
    GoodDog 10 January, 2013, 11:17

    Don’t know what this is, but it certainly isn’t journalism. Quoting from this ‘article’:”Ya sure, we’ll be fine. You betcha.” REALLY? The OCR/CalWatchDog group/s reporters & editors are almost guaranteed to fall into a DSM Axis II diagnosis of one sort or another.

    Reply this comment
  8. eatingdogfood
    eatingdogfood 10 January, 2013, 17:55

    Democratic Hustler Politicians + Corrupt Greedy Unions = BANKRUPTCY BABY!

    Reply this comment
  9. Marten Purdy
    Marten Purdy 11 January, 2013, 06:10

    Debts and liabilities:
    Someone with liabilities is incredibly good at lying. Can get any one believe anything at any time. Abilities are on par with lying greats such as George Costanza, Drake Parker, and George Bush.
    ( liabilities- they hold society together )

    Reply this comment

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