California’s pension system for state workers is $60 billion underfunded, the state teachers’ plan is nearly $75 billion underfunded and the University of California pension system is almost $15 billion underfunded. The state budget continues to pay less than required into the system, so pension debt just keeps growing.
Local governments are in a pickle, too. Vallejo, Stockton and San Bernardino have filed for bankruptcy in recent years. Unfunded pension promises to government workers are helping drive bankruptcies and experts expect more are on the way. In 2013, USA Today compiled a list of 10 cash-strapped California cities that could end up in bankruptcy, including Compton, Fresno, Oakland and San Jose.
Los Angeles County’s pension system is only 51 percent funded, the second-worst-funded county employee retirement system in the state; Merced County is the worst. A recent California Policy Center report found dozens of California cities are spending 10 percent or more of their annual revenue just to pay for pension benefits for city workers. In the city of Los Angeles, 7.9 percent of annual revenue goes to public pensions. In San Gabriel, pension costs are gobbling up 13.4 percent of all revenue and in West Covina the figure is 12.1 percent. No budget can sustain that kind of pressure.
The public is increasingly aware of these pension problems. A new Reason-Rupe poll found 72 percent of Americans are worried that their state and local governments can’t afford to fund the pensions they’ve promised to government workers. And there is growing consensus behind sensible reforms.
More than four out of five Americans, 82 percent, say current public employees should pay more toward their own pensions and health care benefits. And 58 percent of taxpayers favor capping the annual pension benefits government workers can receive. When asked, open ended, how much that cap should be, the average answer was a maximum of $57,000 per year.
That’s dramatically less than the $314,000 annual pension that former Los Angeles County Undersheriff Larry Waldie got from taxpayers in 2013, according to California Policy Center’s pension database. Similarly, former Department of Public Works Director Tom Tidemanson received $308,000 in pension payments in 2013 and retired county Public Defender Michael Judge got $306,000 from taxpayers in 2013.
To prevent these outrageous pension benefits, 78 percent of Americans say the public should get to vote on any future increases to government worker pension benefits. San Francisco has already implemented this reform.
Additionally, 67 percent of Americans support shifting all future government workers, those who haven’t been hired yet, into 401(k)-style retirement plans instead of the guaranteed pension plans most government workers have received. Almost as many, 59 percent, support moving current government workers into 401(k)-style plans but that number flips and 58 percent oppose changing pension plans for current workers if it breaks a written contract.
Taxpayers don’t want to break promises to government workers, but they will if they have to. When presented with the tough choice – either cutting government services or changing public pension promises – 80 percent of Americans would renegotiate pension deals before cutting existing government spending. Just 15 percent favor reducing public services ranging from police and fire protection to recreation so that pensions can be maintained at current levels for past and present public employees. Similarly, 81 percent of Americans would renegotiate pension contracts before raising taxes to pay for pension promises that have been made to government workers.
The public knows tough pension choices have been put off for far too long. Taxpayers actually view many pension reforms as uncontroversial fixes that should be made right now. They think political leaders should ask government employees to contribute more to their own retirements, cap lavish pension payments, shift future government workers to 401(k)-style retirement plans, and give voters approval over future benefit hikes.
If political leaders follow the public’s lead, we can stop burying future generations in debt and get back on a sustainable fiscal path.
Adrian Moore, PhD, is vice president at Reason Foundation, a libertarian think tank in Los Angeles.
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