Two tier or not to tier
Residents of 24th Place in Hermosa Beach celebrate their 40-something-th Annual Fourth of July Parade, led by the Garret-mobile. The parade was preceded by an egg toss and followed by a barbecue. Photo
California is not the only state where deficits are occurring at all levels of government. Pennsylvania, New Jersey, New York and, especially Illinois, are experiencing even worse situations, when those states are compared to California by budget size.
In Illinois, the state legislature, left Springfield with about 26 percent of the budget unbalanced. The state controller has $5.1 billion of unpaid bills on his desk for, among other things, schools, rehabilitation centers, child care, and the state university.
However, no matter how uncomfortable these figures are, one line regarding the approved Redondo Beach budget should catch everyone’s eye. Next year, CALPERS, the state’s employee retirement system, will be increasing its bill to the city by $1.5 million to cover losses it has seen to its portfolio.
The great time bomb of local, regional and state government is the grossly underfunded pension systems into which government employees placed their financial futures. In California, the PERS system (for the educational community, the system is calls STRS), receives income from employers and, sometimes, employees. (In some cases, the government entity picks up the employee’s portion of the PERS tab.) They invest that income. In fact, CALPERS is one of the largest institutional investors in the nation.
However, as with all investments, there are ups and downs. These past few years have not just been a downer in the stock market, but also in one of the other key areas of investment for CALPERS, the real estate market. In short, the system is bleeding money and needs its members to shore it up. This explains the increased bill to the city.
In good times, most people don’t think about CALPERS, because it is doing well financially. So, perhaps, it is unfair to be taking such a critical look only now. But, many of us who have been looking at this over the years knew how much of time bomb this unfunded pension liability issue could be.
There have been some foolish political decisions made, such as providing retroactive increases in pension coverage to public safety employees. While there was no question in my mind that the increases were proper, they should have been prospective only. All that was done was to take any actuarial analysis done prior to the increase, on which the system’s financial structure is based, and throw it out the window.
In addition, political decisions limiting or rejecting multi-level pension structures also have kept new realities from being acted upon. Considering the changing dynamic of public financing, should new employees not yet in the retirement system be brought in under different rules than their predecessors? This has been one of the major fights between the state and worker representatives.
It is not a simple issue by any means. But, it is one that has to be resolved soon if states are to get back to job of providing their residents with what government is supposed to do. If not, the time bomb will go off and the carnage will be widespread. ER