California Cities Spiking Taxes to Pay Spiking Pension Costs

Calpers headquarters is seen in Sacramento, California, October 21, 2009. REUTERS/Max Whittaker

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California cities are being forced to spike taxes to pay for spiking public employee pension funding costs.

California Public Employees’ Retirement System (CalPERS) has just reported that its $344.4 billion defined benefit pension plan, which covers most state and local government employees, has fallen from a $2.9 billion surplus in 2007 to a $138.6 billion deficit as of June 2016. The rate of funding decline accelerated over the prior year by $27.3 billion.

With the pension plan’s funded ratio — equal to the value of plan assets divided by present pension obligations — having fallen to 68 percent, far below what actuaries call the 80 percent minimum for adequate fund, CalPERS is demanding that cities increase payments.

A recent report warned that CalPERS’ poor investment return of just 4.4 percent over the last decade could be further reduced by large and politically motivated “environment, social and governance” investment strategies. These so-called ESG strategies have drastically underperformed other pension plan returns, which explains why CalPERS is “in the midst of a plan to lower its investment return assumptions to 7% from 7.5% by July 1, 2019.”

CalPERS will pay out $21.4 billion in benefits to retirees and beneficiaries in 2017, a 5.5 percent increase from 2016 and more than double the $10.3 billion in 2007. But most of the 1.93 million retirement system members and 1.4 million health care participants who receive administration services from CalPERS are associated with local governments that are directly responsible for paying spiking benefit costs.

At the September CalPERS meeting in Sacramento, eight cities told the pension plan’s trustees that they are experiencing spiking pension funding costs. Representatives from the largest local governments in the Sacramento area claimed that pension funding costs are set to spike by 14 percent next fiscal year.

The city manager of Vallejo, which recently emerged from bankruptcy, said that the city’s police pension funding costs are expected to jump from about 50 percent to 98 percent of payroll over the next decade. Both Lodi and Oroville officials stated that they have had to cut a third of their staff over the last decade.

El Segundo mayor pro tem Drew Boyles told the CalPERS board last month that his city’s CalPERS required pension contribution will be $11 million next year, or about 16 percent of the general fund’s revenue. But the cost in five years is expected to hit $18 million, or 25 percent of general fund revenue. He blamed the increase on funding for police and fire pension costs that are set to spike from 50 percent to 80 percent of payroll.

The California legislature passed SB 703, which will allow Alameda County and its local cities to raise about $148.9 million by exceeding the 2 percent local sales and use tax rate cap. The City Council of El Segundo plans to spike the local sales tax by an additional 3/4-cent to 10.25 percent to generate $9 million to pay for spiking pension funding costs.

All the local government representatives that have been addressing CalPERS’ monthly meetings complain that even after eliminating of services, slashing infrastructure spending, and planning for layoffs, they will still be forced to raise taxes to fund pension costs.

Despite California already being the highest-taxed state in the nation, the California Tax Foundation warned in June that Sacramento politicians were proposing another $16.9 billion in “targeted taxes and fees.” If passed, much of that tsunami of new cash could end up at CalPERS to fund pension shortfalls.

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  1. Just one of many reasons I am leaving. Our new house in Arizona is almost done and it is only matter of a short time before I can say I am an ex resident of the state of Kalifornistan.

  2. Will things just crash because those who can’t leave really CAN’T AFFORD TO pay these corrupt individuals who like Jerry Brown want to take us for any and all that we live on????

  3. WELL, blame the legislature that started all of this with pension raises PRE- dot com melt down and 2008 Lehman Bros meltdown. The IDIOTS in control at the time was Dem majority, This is what happens when people keep electing people that have no business experience , and are historically famous for TAX & SPEND process of spending other peoples money………. Then same idiots decide Social Issues are more important that funding OBLIGATIONS. Can you say tobacco investments that went away……….. Stupid!!! The lemmings keep jumping off the cliff by lack of voter education, read those that only vote by who has the best radio ad or TV commercial… Sad.
    Solution? Throw or vote out every liberal democrat out of our Legislature!

  4. retiredxlr8r says

    California always throws money at problems until the problem is fixed. The problem? There’s never enough money!
    Goes to the legislature and their incompetence at budgeting and managing Taxpayers revenues. When there’s a flood of money they spend more than comes in. When there is a drought of money, guess what, they spend more than comes in. And gov Brown is part of that problem too. Always attempting to close the barn door right after the barn burns down.
    Thanks California voters, you screwed up again!

    • I’m curious , what in the world makes you think that that anyone who is a real majority citizen of California did not have their vote changed electronically and non legals voting the way that the ” hand that feeds them ” and gives them a free living tells them to ? The vote is rigged here in the Socialist ie communist globalist Traitor to America once great state of California.

  5. We “escaped” Kommiefornia about 3 months ago.

    California was once a shining example of all that was good in America; good paying jobs, good weather, good schools, modern freeways, and a thriving business climate.

    Now it’s almost exactly the opposite. What a shame!

  6. The Democrats and their “social justice” programs have won again.Their idea of an investment has nothing to do with economics.

  7. Same as DrJim except we abandoned ship 7 months ago next week…
    Still a nice place to visit but this article is a wake up reminder about why this frog decided to jump out of the pot as the water continued to warm from these bad governance decisions.
    The social justice warriors want to have their cake and eat it too which means that taxpayers are going to foot the bill for all this virtue signaling…
    And then there’s the seismic risk overhang….I noticed that Thousand Oaks area has had over 5 earthquakes greater than 1.5 in the last day after being quiet for months…
    Fires, earthquakes, coming floods after the fires….
    Good luck Cali, you’re gonna need it….

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