THE MONSTER IN THE CLOSET – PUBLIC EMPLOYEE PENSIONS

Almost every child at some time fears the monster in the closet.  Well folks, we have a monster in our closet!  Our monster is the thing that will ultimately reduce your government services and potentially impact the future viability of many local governments. monster-in-the-closet       For years, local government was not required to show their obligation to pay for retiree benefits on their balance sheets; thus, most decision makers were unaware of the future debt they were incurring.

A few years ago that changed, when local governments were required to recognize their retirement debt obligation as part of their budgeting process.  We are required to show the debt obligation; however, we are not required to account for how we plan to meet that indebtedness. It must be remembered that Plumas County is required to have a balanced budget each year, that balances expenditures with anticipated income / revenue.

Past practice in Plumas County budgeting has been “pay as you go”; in other words, to estimate the current year’s requirement to pay for retiree benefits and build that into the budget, without looking to the compounding problem going into the future.  Last year, for the first time, Plumas County set aside dollars to be placed in an investment account whose earnings will help to meet the retiree debt load.  Due to extremely tight constraints, we were only able to establish an account with a small contribution; however, it is my intention to lobby heavily during this budget cycle for continuing to fund this account, if not to increase our contributions.

If we do not recognize this obligation and begin addressing it now, we will be facing dire consequences going into the future. We will see a large portion of our County labor force retiring due to the aging out of the “baby boomer” generation, without the increased revenue to pay for that growing liability. This will be further compounded by the obligations toward funding staffing hired to replace them!

This is not exclusively a local problem!  Governments all over the United States are in the same boat.  California is currently in a position where the average State retiree is receiving benefits that are far greater than the income the average citizen is currently earning. What part of this equation does not make sense?

The Wall Street Journal recently published an article discussing the situation on a national level – How to Become a Public Pension Millionaire .  In California, public employee unions are very strong; to the point that it becomes almost impossible for cities and counties to negotiate contracts that require workers to shoulder a greater portion of their retirement benefit contributions. Public pressure to maintain salaries and benefits for sheriff deputies, police and fire has compounded the problem.

Over time, many local governments, including Plumas County, have negotiated contracts with employee unions that saw the employer paying a greater portion of the employees’ share (in some instances 100%) in addition to the employer’s contribution to the Public Employee Retirement System costs. This has created a situation that cannot be sustained!

As it stands now, “it is truly a broken, unsustainable system…created with good intentions, yet with unfortunate consequences”. In future blogs, we will look at how this works, process and what must be done to fix it. We no longer have the luxury of “kicking this can down the road”!