Experts: Mounting Pension Costs Will Mean Big Cuts to Public Services—Again
Local governments across California are bracing for a more costly future thanks to mounting retirement obligations, and their residents are apt to experience cuts to local services on par with the 2008 recession as a result.
This year alone, the Sacramento Metropolitan Fire District will owe $34 million in retirement costs, up 26 percent from 10 years ago. The most expensive plans in the Sacramento region, of which it is a part, will cost 42 cents for every dollar next year.
As a result of CalPERS’ recent decision to downgrade investment forecasts, governments and some public employees will have to contribute more to pensions. The results will be painful.
“This is going to be significant for many cities and it’s going to mean some tough decisions,” said municipal finance expert Michael Coleman. “You may have cities that will make cuts that go way below their standards for services.”
As the Sacramento Bee notes, police and fire safety plans are the most expensive. A 30-year veteran with Metro Fire can retire at age 50 and make 90 percent of his or her salary for life.
On top of the underwhelming performance of investments, local governments had to grapple with decreased property tax revenues after the housing market crash. By 2011, Metro Fire had closed four stations, in part because of rising pension costs. We can expect to see more of that.
West Sacramento and South Lake Tahoe offer another glimpse of what could be coming. One-fourth of West Sacramento’s 400 employees were cut during the recession and South Lake Tahoe still suffers from the downturn in the form of crumbling roads.
Read more about what can we expect here.