Greetings!
I
t's February, which means budget talks are consuming the news. It happens every year, yet the Federal Government is in overtime playing financial kickball. A balanced budget, by definition, seems simple enough: it is a budget that has no budget deficit, but could possibly have a budget surplus. Of course we all understand that the government will NOT budget for a surplus...
What about our State, County, and City budgets? What is the biggest challenge our local governing bodies face when creating a balanced budget?
According to a commentary by Dan Walters, the California Pension Crisis is the
Achilles' heel
that could take many cities out of the game.
From one end of California to the other, hundreds of cities are facing a tsunami of pension costs that officials say is forcing them to reduce vital services and could drive some—perhaps many—into functional insolvency or even bankruptcy.
The system that manages pension plans for the state government and thousands of local governments lost a staggering $100 billion or so in the Great Recession a decade ago and has not recovered. The California Public Employees’ Retirement System (CalPERS) is rapidly increasing mandatory contributions into its pension trust fund to make up for those losses, cope with a host of rising expenses and, it would appear, stave off the prospect of its own insolvency.
If, as city officials fear, they get no relief from CalPERS or in the Capitol, and their pension costs continue to escalate to unsustainable levels, they have several options, some of which are already being pursued:
- Negotiate lower levels of benefits with unions for pre-reform employees, to supplement the lower levels for new workers—an option that the pending state Supreme Court case could make more viable;
- Negotiate contracts that shift a greater share of pension costs to employees, particularly in cities that have been picking up employee shares;
- Reduce future obligations by making lump-sum payments, emulating a $6 billion extra payment that Brown included in his 2017-18 budget toward future state liabilities. Brown is borrowing the money from a state fund that invests extra cash, and some cities have floated “pension obligation bonds” to do the same;
- Cut city services to fund special reserves for future pension cost increases;
- Raise taxes;
- Declare bankruptcy.
Keeping you informed,
Rorie Johnston
CEO
Read the entire article here:
