This COMMENTARY was written by community contributor, Marty Richman.
In fiscal year 2018-2019 the City of Hollister and San Benito County will pay CalPERS a total of $10.7 million, or 26.5 percent of their estimated combined payroll of $40.5 million. Of those payments $4.6 million will be for the annual service accrual costs for active employees and $6.1 million to cover a multi-decade amortization of pension plan Unfunded Accrued Liabilities (UAL) that is finally getting attention.
In a financial version of ‘Scared Straight’ following the 2008 crash the public started to pay more attention to unfunded retirement legal debt obligations, especially at the state and local level. The problem had been there all long, but the primary players – the agencies, employees, and politicians – were perfectly happy to have the numbers buried in obscure financial reports and even then, they were often masked by fanciful assumptions of investment return rates.
Eventually the Federal government stepped in and state and local governments are now required to report unfunded pension liabilities on their balance sheets. The numbers, now very visible, but still somewhat masked by options, were scary.
In response CalPERS has been gradually ramping up its requirements for UAL payments statewide to cover projected shortages; $2.5 billion in FY 2016-17, $2.9 billion in FY 2017-18, and $3.5 billion in FY 2018-19; a total of $8.9 billion out of public coffers in only three years.
Even the California legislature got going enacting The California Public Employees' Pension Reform Act (PEPRA), which took effect in January 2013. PEPRA changes the retirement system for most new CalPERS members joining after that date, but generally leaves things the same for members, retirees, survivors, transferees and terminated employees that were in the former system.
PEPRA is supposed to save up to $55 billion during the next 30 years as current employees retire and new employees are hired. According to CalPERS nearly 30 percent (200,000) of members were under PEPRA as of June, 2016.
One danger is that another financial downturn will inflate the unfunded liabilities that have to support current and retiring classic program members for many decades.
Even more dangerous is a return to public ignorance and apathy about the system. The classic system did not get in trouble on the first day; it was compromised one little bit at a time with “golden handshakes” and failure to take into account the cost of lifetime benefits every time a public agency walks through a one-way contract door.
Much will depend in the public’s willingness to hold state and local politicians accountable for financial responsibility; if you snooze, you lose.
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Supervisor Peter Hernandez writes about his view on the board's primary responsibility and explains the protocol to set the agenda.