Po­lice, fire­fight­ers now pay­ing more to fund pen­sions

Cities per­suade em­ploy­ees to con­trib­ute a greater share as re­tire­ment costs rise

The Mercury News Weekend - - FRONT PAGE - By Adam Ash­ton The Sacra­mento Bee

From Ar­cata on the North Coast to Hemet in the In­land Em­pire, Cal­i­for­nia cops and fire­fight­ers are chip­ping in more money to pay for their pen­sions while the cities that em­ploy them strug­gle to man­age fast-ris­ing re­tire­ment costs.

The new pen­sion charges — a 12 per­cent pay­check de­duc­tion in Sacra­mento, an ex­tra 8 per­cent de­duc­tion in Clo­vis, a pay cut and 12 per­cent pen­sion con­tri­bu­tion in Oroville, for ex­am­ple — re­flect a cal­cu­lus at lo­cal govern­ments that­work­ers are bet­ter off, in the long run, putting­money into the Cal­i­for­nia Pub­lic Em­ploy­ees’ Re­tire­ment Sys­tem to­day rather than bank­ing on the $350 bil­lion pen­sion fund earn­ing its way out of its re­ces­sion losses.

They’re also among the few op­tions that lo­cal govern­ments have to smooth out hikes in pen­sion costs that­many of the­man­tic­i­patewill nearly dou­ble their an­nual spend­ing on CalPERS by 2024. The pen­sion fund’s as­sets are worth about 70 per­cent of what it owes to work­ers and re­tirees, leav­ing it short tens of bil­lions of dol­lars over time.

Lo­cal govern­ments can­not re­scind ben­e­fits they’ve promised to work­ers or re­tirees, so their choices are to reach com­pro­mises with their unions or find a way to pay down their pen­sion debts faster.

“We do knowin the next cou­ple years the PERS im­pacts are go­ing to be a heav­ier lift,” said Kim

Sarkovich, Rock­lin’s chief fi­nan­cial of­fi­cer. Pub­lic safety em­ploy­ees in her city now con­trib­ute at least 12 per­cent of their wages to CalPERS. “By do­ing th­ese lit­tle things we haven’t had to have dra­co­nian cuts or any­thing dra­matic.”

More than 100 Cal­i­for­nia lo­cal govern­ments in the past five years per­suaded their em­ploy­ees to ac­cept con­tracts re­quir­ing them to pick up a greater share of the cost of fund­ing their pen­sions, ac­cord­ing to records The Sacra­mento Bee ob­tained through the Cal­i­for­nia Pub­lic Records Act.

Many of them are in the Sacra­mento area and in the Bay Area. They range from com­pa­ra­bly low- in­come com­mu­ni­ties like Oroville to very wealthy ones like Ather­ton, where the me­dian-house­hold in­come is greater than $250,000. Fire­fight­ers in Paso Rob­les in San Luis Obispo County are kick­ing in 15 per­cent of their pay­checks to­ward CalPERS, ac­cord­ing to their con­tract.

“Had we not agreed to that, who knows what the con­se­quences could have been,” said Robert Padilla, spokesman for the union that rep­re­sents Sacra­mento city fire­fight­ers. The union agreed to the pay­check de­duc­tion in 2012 dur­ing the re­ces­sion that es­ca­lated to 12 per­cent by 2015. “You were ask­ing a lot of mem­bers, those were dire times.”

CalPERS bills are climb­ing for two sig­nif­i­cant rea­sons.

First, CalPERS in 2016 ac­knowl­edged that it prob­a­bly would not hit the 7.5 per­cent an­nual in­vest­ment earn­ings tar­get that it had used for its fi­nan­cial pro­jec­tions, and it low­ered its es­ti­mate to 7 per­cent. That led the pen­sion fund to charge more money to the or­ga­ni­za­tions that be­long to it to fund their em­ploy­ees’ pen­sions.

Wil­shire As­so­ci­ates, one of CalPERS’ pri­mary fi­nan­cial con­sul­tants, pro­jected that the in­vest­ment re­turn rate could be even lower at 6.2 per­cent. That out­come could lead cities to make even more painful cuts in years ahead.

Sep­a­rately, govern­ment agen­cies in CalPERS have to pay down their un­funded li­a­bil­i­ties, or the dif­fer­ence be­tween the as­sets their ac­counts hold and what they owe to their work­ers and re­tirees. They cut checks each year to whit­tle away at that debt.

The ris­ing re­tire­ment rates and debt pay­ments could com­pel Sacra­mento to cut spend­ing on ser­vices or em­ploy­ees in com­ing years.

Sacra­mento vot­ers next week will con­side rMea­sure U, a pro­posed sales tax in­crease that could buf­fer the city from some of those ris­ing per­son­nel ex­penses. If it fails, Sacra­mento As­sis­tant City Man­ager Leyne Mil­stein stressed the city would find a way to bal­ance its bud­get.

In Martinez, po­lice ac­cepted a pen­sion cost-shar­ing agree­ment but also per- suaded lead­ers to grant them a sub­stan­tial raise. They started pay­ing into their pen­sion plan dur­ing the re­ces­sion and are now putting 10 per­cent of their wages into CalPERS.

In June, the Martinez po­lice union struck an agree­ment that gave of­fi­cers a 12 per­cent pay hike. The city agreed to it to slow an ex­o­dus of of­fi­cers who had left for bet­ter-pay­ing jobs in nearby com­mu­ni­ties.

Martinez vot­ers also are con­sid­er­ing a sales tax in­crease next week. If it fails, the city and the union are ex­pected to go back to the bar­gain­ing ta­ble.

“The ( pay) in­crease is not sus­tain­able ab­sent new rev­enue,” Martinez As­sis­tant City Man­ager Anne Card­well said.

Some cities want to ad­dress their pen­sion short­falls more ag­gres­sively.

Palo Alto, where po­lice are con­tribut­ing 12.5 per­cent of their wages to­ward CalPERS, on Mon­day planned to dis­cuss ways to re­duce spend­ing in case CalPERS fails to hit its in­vest­ment earn­ings tar­get and raises rates fur­ther.

Palo Alto has two pen­sion plans in CalPERS. Its ac­count for pub­lic safety em­ploy­ees is worth about 64 per­cent of what the city owes to work­ers and re­tirees; its gen­eral em­ployee plan has 66 per­cent of what it owes to its mem­bers.

If trends don’t change, Palo Alto an­tic­i­pates send­ing CalPERS 74 cents for ev­ery dol­lar it spends on po­lice and fire wages by 2024, ac­cord­ing to an anal­y­sis pre­pared for its city coun­cil.

Pro­jec­tions like those have some Cal­i­for­nia lo­cal govern­ments press­ing for more op­tions, such as em­pow­er­ing city ad­min­is­tra­tions to bar­gain with unions for ad­just­ments in the gen­er­ous pen­sion ben­e­fits law­mak­ers gave to pub­lic em­ploy­ees dur­ing the dot-com boom.

Gov. Jerry Brown ended those ben­e­fits for new pub­lic em­ploy­ees with a law he signed in 2012 that also re­quired new govern­ment em­ploy­ees to pay more money to­ward their pen­sions. Work­ers who joined Cal­i­for­nia govern­ment be­fore 2013 con­tinue to ac­crue pen­sion ben­e­fits at the dot-com era rates.

Next month, the Cal­i­for­nia Supreme Court is ex­pected to hear a law­suit that could pave the way for the kind of dis­cus­sions the League of Cal­i­for­nia Cities wants to see.

It’s a chal­lenge from the union that rep­re­sents Cal Fire fire­fight­ers, ar­gu­ing that Brown’s pen­sion law went too far and elim­i­nated a ben­e­fit that had been promised to work­ers.

If the union wins, Cal­i­for­nia state govern­ment would have to again al­low em­ploy­ees hired be­fore 2013 to buy “air time” for their pen­sions. Brown’s law struck that ben­e­fit for all state em­ploy­ees re­gard­less of when they were hired.

The law­suit is con­sid­ered a test of the Cal­i­for­nia rule, the prece­dent that for­bids govern­ment agen­cies from with­draw­ing ben­e­fits they have of­fered to work­ers.

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