City managers across California are sounding the alarm about impending financial hardship and possible bankruptcies thanks to skyrocketing pension costs. Among them: Lodi's Steve Schwabauer and South Lake Tahoe's Nancy Kerry, both of whom recently spoke to Daniel Borenstein of the Bay Area News Group.
Schwabauer estimates that about a third of California's municipalities could be at risk of fiscal insolvency, including his own. Kerry says her city will have to make painful cuts to services to avoid bankruptcy. And both agree that digging out of this hole will require pension cuts for existing employees, not just future hires.
"If we had taken this on 15 years ago and said we had a real problem, I think there might have been another way out,” said Schwabauer. “We waited too long to deal with it because nobody wanted to pay the bill.”
But cutting benefits for existing employees is easier said than done. Much of it will hinge on how the California Supreme Court rules on the so-called California Rule, which prohibits cuts to benefits promised at hire.
A number of lower court rulings have given pension reformers hope, but the power of the labor-dominated CalPERS board -- which opposes such attempts -- should not be underestimated. If that rule cannot be stopped in the courts or at the ballot box, Schwabauer and Kerry think we'll see a tsunami of municipal bankruptcies in the years to come.