CalPERS rate hike slams cities

19 Feb, 2014 by John Seiler

Print this article Font size -16+

Californians are finding out how Gov. Jerry Brown is going to deal with the state’s pension crisis: make the taxpayers pay for it. This from CalPensions:

A divided CalPERS board yesterday approved a faster rate hike for the state urged by Gov. Brown, but opposed by unions. A proposal to give struggling cities the option of more time to phase in the rate hike, seven years instead of five, was rejected.

The rate hike to cover the cost of retirees living longer is the third in the last two years, following a lower earnings forecast and a more conservative actuarial method. Many local government rates could increase roughly 50 percent by 2020.

An underfunded CalPERS has about 70 percent of the projected assets needed to pay promised pensions. There were big pension increases and deep employer rate cuts in good times, then huge investment losses during the bad times last decade.

Well, either the money comes from somewhere — meaning the taxpayers. Of the pensions will have to be cut, which is anathema to the unions.

In 2012, San Bernardino, Stockton and Mammoth Lakes declared bankruptcy. The latter is a small city that lost a lawsuit. But the other two big cities’ financial problems stemmed to a great extent (but not entirely) from the difficulty in making pension payments.

The economy is doing better now, so further municipal bankruptcies may not happen for a couple of years. But when a new recession inevitably hits, these new pension payments will dig deep and likely spark more bankruptcies.

The mistake of spiking pensions 15 years ago continues to rip across the state.