Roll back those pensions! Give back those sweeteners!
This may be the latest new idea in public finance to blow in from the West if Orange County, California, Supervisor John Moorlach has anything to say about it.
Tax-cap fever and the crazy-quilt creation of special tax assessment districts are just two of the modern-day contributions California has made to the world of public finance.
Next up: Nuclear war between those who get public pensions and those who don't.
Those are the words — “nuclear war'' — used by Orange County Sheriff Mike Carona, commenting on a plan by the county's supervisors to challenge a pension increase given to sheriff's deputies in 2001.
The plan to challenge the retroactive increase was approved by county supervisors on July 31. Supervisor Moorlach said the increase was unconstitutional because it created an unfunded liability without voter approval, and might bankrupt the county.
Moorlach knows something about municipal bankruptcy. He was the critic who warned that Orange County's investments in derivative securities were unwise. He ran for the office of treasurer and tax collector in 1994 and lost to popular incumbent Robert Citron. In December of that year, the county became the biggest municipal bankruptcy case ever after its investments tanked. Moorlach was appointed to fill out Citron's term in March 1995, and won re-election twice before being elected a supervisor last year.
Everyone's Watching
Everyone in California is going to be watching the county, and if it prevails in court, because so many state and local agencies did the same thing when it looked like pension funds were awash in cash.
What the county did in 2001 was to approve a plan to allow sheriff's deputies to retire at age 50 with 3 percent of their peak year of pay, multiplied by the number of years they served. This was a 50 percent raise above the previous plan, which allowed them to retire at 50 with 2 percent. The new plan took effect in 2002.
For example, a deputy retiring after 25 years at age 50 with a $143,955 salary would get a pension of $71,978 under the 2 percent plan, and $107,966 under the 3 percent plan, Moorlach pointed out in his presentation.
Moorlach says the increase is unconstitutional, because it created a new liability, one not approved by the voters and one that created an immediate shortfall because no money had been set aside to pay for it. He wants the increase to be rescinded, or for the deputies to chip in and help pay for it.
21st Century Problem
If the county prevails, and that's a big “if,'' states and localities across the nation will probably start looking at how they, too, might roll back what are now being seen as overly generous pension benefits granted to government workers.
Public pensions are a 21st-century problem. Nobody really gave them much thought before now. Decades ago, few people begrudged police or firefighters, people who put their lives on the line every day, full pensions with benefits.
Even as the size of state and local government grew, few people felt envious of those civil servants who weren't in the line of fire, those with clerical jobs or those in the parks department or the department of sanitation, for example, who received similar retirement packages.
Everyone knew that in exchange for salaries that were somewhat lower than those on offer from private companies, people who worked for government got nice retirement benefits.
Nobody really thought about those benefits until recently, until about the time private companies started doing away with their own pension and benefit plans, replacing them with limited contributions and making most employees responsible for saving for their own retirements.
Union Battle
So now everybody is looking at public employees' pensions, and wondering if we, the taxpayers, can afford them.
We're looking at them because of envy. We're looking at them because our elected representatives seem to have juiced some of those plans up considerably while we weren't looking.
And we're looking at public-employee pensions because it looks like our elected representatives haven't put enough aside to pay for those liabilities, stinting on annual contributions and otherwise not planning ahead. The bill is coming due as surely as all those baby boomers reach retirement age.
And now, thanks to a new rule from the Governmental Accounting Standards Board, we have something else to worry about — not just pensions, but those so-called other post- employment benefits, chiefly health care, promised to public employees. States and localities are in the process of tallying those, and the final figure just for those benefits might be $1 trillion-plus.
Until now, those costs were usually paid for on a pay-as- you-go basis; GASB wants municipal governments to calculate about how much they promised, and include the figure in their financial statements. Surprise!
Welcome to the next union war.
