City pensions worry Central Coast taxpayers

September 27, 2012

Sustainability of city finances has become a growing concern of late in California.

Director or Research of the Davenport Institute at Pepperdine University Dr. Steven Frates spoke to San Luis Obispo property and business owners Wednesday on the state of city finances in San Luis Obispo, as well as throughout the state.

Frates, also president of The Center For Government Analysis, authored a report five years ago stating that the city of San Luis Obispo would be heading for fiscal hardships in five years. At the San Luis Obispo Property and Business Owners’ Association luncheon Wednesday, Frates said the city is now in “very bad shape” because its pension obligations are only about 70 percent funded.

In order to overcome its unfunded liabilities, Frates said the city must either cut salaries and benefits, allocate more money to employees while cutting other expenditures, or raise taxes and fees. Though the city council will face political pressure for choosing any of those options, the analyst said the worst option would be to finance the retirement benefits through pension obligation bonds.

“Every time you go into debt to finance pensions, you are taking operating revenue away from municipal services,” Frates said. “What you are doing is cheating the future generations.”

Frates also discussed the fiscal fate of other California cities. He said the city of Los Angeles is on a path toward bankruptcy due in large part to a collapsing teacher pension system. A high percentage of Los Angeles Unified School District teachers are expected to retire soon, and many will be healthy females with multiple decades remaining in their lives. Frates said it would take drastic cuts to public services to pay for their pensions.

California as a whole now has nearly half a trillion dollars in unfunded pension liability, which makes up almost one tenth of the nationwide pension debt of between five and six trillion dollars.

“Retired firefighters in California make more than the Joint Chiefs of Staff,” Frates said.

Yet one state is in even worse fiscal shape than California: Illinois. Frates said the pension system in Illinois is now only 40 percent funded.

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At all levels of government, the rate of compensation has gone up much more rapidly than it has in the private sector and, most importantly, faster than the personal income of the people who pay for this. There has been a wealth transfer. It has gone from the citizens to the people in government. You often hear people in government cry that there are going to be cuts and we’re hurting the poor and the little children. The fact of the matter is the citizens of the of SLO and the rest of the state are making life better, not for schoolchildren or people in need, but for government employees, both current and retired.