The old axiom "look before you leap" can easily be applied to the unwise pension enhancements the Legislature, public pension systems and local agencies granted public employees in the early part of the past decade. Once thought affordable, they quickly fell into disfavor as the recession strained local budgets, necessitated the reduction of services and assumed pension system investment returns turned, in some cases, into losses.
Confronting this dire challenge a few years ago, the League of California Cities and city leaders urged cities to contain these rising costs by asking employees to contribute more to their pensions, reduce pension benefits for new hires, and other short-term steps to stanch the fiscal bleeding.
Simultaneously, the League undertook a comprehensive study of necessary long-term reforms. Burned once by the promises that cities could easily afford to enhance pensions, city officials were determined to carefully develop reform proposals they were convinced would have long-term benefit and avoid hidden costs.
The league's 2011 pension reform action plan contained consensus solutions that were carefully considered. Ultimately many of our recommendations made their way into the 2012 pension reform legislation that the league supported strongly.
With the 2012 pension reforms now in place, cities now are turning to the difficult task of managing the rising costs of legally binding pension commitments to existing employees. They know full well that all options have to be on the table, including reductions in the workforce, public-private partnerships, consolidated service delivery, and funding of unfunded pension liabilities. In fact, all of these options may be necessary to fund the legally mandated costs.
In a column published April 21, Daniel Borenstein took issue with the league's recent request to the CalPERS board that it provide city officials a total of two months instead of one to study a complex 42-page actuarial study that could lead to simply unaffordable higher contributions to CalPERS for many participating local agencies that are fiscally distressed.
While the increased pension contributions may be justified and prudent, in a meeting CalPERS invited us to attend several weeks ago, we urged the staff to take time to engage the very public agencies that will shoulder the costs. The league offered to quickly organize the meetings.
Borenstein is right that there is plenty of blame to go around for the pension predicament we are in -- the Legislature, CalPERS, local agencies and labor all own part of it.
We suggested the extra month for dialogue to help CalPERS leaders assure justifiably skeptical city officials that the changes would genuinely improve the sustainability of the CalPERS system. Borenstein even quotes one city manager who says the changes might not go far enough, underscoring that it would have been good for CalPERS to hear that viewpoint before the final decision was made.
Many cities are still facing serious fiscal stress and are years away from returning to normal. Shouldn't someone ask what significant contribution rate increases could do to such cities? With two cities facing potential bankruptcy, this is clearly not just a theoretical possibility. If more cities face bankruptcy, isn't it important that everyone know whether the burden of their unsustainable pension costs could be shifted to all local agencies? CalPERS may be prepared for that result, but it should probably be openly discussed before the decision is made.
We all need to pull together to manage our pension plans -- CalPERS, cities and employees. In doing so, the league simply suggests we should "measure twice and cut once," as any good carpenter advises. That was the simple and only basis for our recommendation to study matters for one more month. After the pension debacle of the last decade, no one should have to apologize for the audacity to suggest that we try to get it right this time.
Chris McKenzie is executive director of the League of California Cities.