Many Orange County cities are struggling to maintain budgets that keep, or minimally cut services and employees, while trying to keep up with growing law enforcement and fire pension spending, reports Spencer Custodio on the Voice of OC website. In his article he quotes Fullerton council member Bruce Whitaker and city manager Ken Domer.
Police officer and firefighter pension payments often take the biggest share of retirement benefits, especially in cities that have their own police departments, fire departments or both.
“See the problem is the great majority of public cost is in public safety and that’s very resistant to cuts. It’s politically powerful and the public wants public safety as well, so the public doesn’t like to see cuts there either,” said Fullerton City Councilman Bruce Whitaker.
Fullerton City Manager Ken Domer said it’s tough to pay pensions when the costs are rising at a faster rate than city revenues.
“It’s extremely difficult when your pensions costs are escalating at a pace that is much higher than your other expenditures and far higher than your revenues and if we have a recession in two years, we’re going to see our revenues decrease and our pension expenditures increase. And that’s where just about every city is going to struggle with,” Domer said.
According to CalPERS projections for Fullerton, the city will have to pay roughly $20.5 million total in pensions for the 2018-2019 fiscal year. The majority of that, $14.3 million, is for safety employees’ pensions.
Whitaker said Fullerton has had to put infrastructure projects, like road repair, on hold while the city figures out how to deal with the rising pension costs. At nearly every Fullerton City Council meeting, the city’s poor road conditions are brought up by residents during public comment.
“Actually what you’ve seen there has been threefold. One is postponing necessary infrastructure improvements, like in Fullerton, the streets have gotten worse because we need to take up the growing pension costs,” Whitaker said. “We’ve had to curtail a lot of the bottom-level employees when it comes to landscape maintenance, arborists … public works … it seems like that’s the choice area where cities start cutting back and we’ve seen some of that.”
“And the third consequence of this has been increased taxes and fees. Most cities have been working on driving up structural taxes and fees and we’ve seen this election,” Whitaker said, referring to sales tax measures and fee increases throughout cities.
Like Santa Ana, the Garden Grove City Council put a sales tax question to voters in November. Voters overwhelmingly approved the sales tax measure by a nearly 30 percent margin, raising the sales tax by one percent, meaning Garden Grove will now have an 8.75 percent sales tax. Placentia voters also did the same this November.
“These are regressive taxes hitting people that are least able to pay. And they are shouldering some of the costs related to pensions and benefits — that really is the impact,” Whitaker said.
Economic downturns, like the Great Recession, often take a financial toll on cities. The downturns also hit CalPERS investments hard. In 2008 CalPERS had a negative 5.1 investment return and a negative 24 percent return in 2009, before going up to a 13.3 percent return in 2010.
“CalPERS projects about a seven percent return per year on investments and we are overdue for a recession and we are already seeing some weaknesses in the stock market. So if we get an economic downturn, that’s going to reduce the investment returns … taxpayers are always the backstop — so if investments underperform, the taxpayers get to throw in the difference,” Whitaker said.
Domer said the market trend affecting the pension system shows how difficult paying pensions can be.
“It’s been reflecting how easy it is to take a hit and how hard it is to climb back up,” Domer said. “I think everybody should be worried and we should be looking at ways to control our costs, reduce our pension load — we have to get through it.”
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