Read Jack Atkin’s Opening and Closing Remarks at Public Pension Seminar
Posted by Dan | Filed under Uncategorized
Association President Jack Atkin represented the interest of taxpayers at the April 5 Public Employee Pension Seminar along with other panelists Robert Eyler from Sonoma State Univiersity, Cynthia Murray from the North Bay Leadership Council and Assemblyman Michael Allen. The seminar was hosted by SoCo Supervisors Shirlee Zane and David Rabbitt. Jack’s opening and closing remarks follow.
Sonoma County Public Forum on Pension Costs
April 5, 2012
Jack Atkin, Sonoma County Taxpayers’ Association
Opening Remarks
In 1970 some simple words were spoken that have since become famous, “Houston, we have a problem.” This was how the astronauts in Apollo 13 alerted mission control of the problem when oxygen tanked exploded on their space craft.
Last fall Sonoma County had its Apollo 13 moment when the Ad Hoc pension committee issued its report, which basically said, “Sonoma County, we have a problem.”
I’d like to address what’s at risk in this pension crisis. There are two points I’d like to make.
- One has to do with the costs of the pension problem in stated terms we can understand,
- and the other is about the County government’s ability to function and achieve its basic goal of delivering services to the community.
First let’s address the topic of costs. When we talk about pension benefit formulas like 3% at 50 or 2.5% at 60, or we discuss the topic of unfunded pension liabilities, it’s hard to relate those numbers and concepts to something that is meaningful to everyday citizens. I’d like to provide some perspective to help with that understanding. To do so it’s necessary to try to calculate what are the excess pension costs, over what might be considered normal.
According to the report, pension costs increased from $21 million in 2000 to $97 million in 2010. Unless changed, they are forecast to balloon further to $ 209 million in 2021. These are annual costs that recur each year.
So how much of this $76 MM increase over the past decade can be considered excess pension cost? It’s reasonable to assume some of the increase would have occurred from natural causes and is not part of the problem. We can also calculate that an increase from $21MM to $97 MM represents a growth rate of about 16% a year. Clearly that is an unsustainable growth rate. We know that inflation during the decade was about 3% – 4% a year.
If we assume a growth rate twice the level of inflation, say 8%, then normal pension costs would have been about $47MM. That still leaves the difference between $97 MM and $47 MM of about $50MM per year, and that can be thought of as excess costs. In other words these excess costs are funds going toward pensions that had to be diverted from other County services.
What could the County do if pension costs were under control and they had an extra $50 MM to deliver services to the community? One topic that has received a lot of publicity recently is the decision to stop maintaining a number of County roads. The current County road maintenance budget is somewhere in the neighborhood of $5MM – $10 MM per year. It’s pretty easy to see that just a small portion of the excess pension cost, if saved, could fund the County’s ability to continue to maintain all its roads. That would leave plenty of funds for park maintenance more sheriff’s deputies on the streets, better funded court operations and the list goes on.
Let’s consider who bears this cost? Foremost are the residents of the County who will not receive the services that they have come to expect. But there are others, too. Retired County employees have not received a cost of living increase in 5-6 years because the retirement fund is so underfunded that increases cannot prudently be granted. In addition our children and grandchildren will be paying for the excessive pensions of the current generation of employees as the underfunded amount, which currently stands at about $250 MM, is being amortized and paid for over a 20 year period.
My second point may be a bit more philosophical, but is possibly more important. The question is, when faced with a serious problem that virtually everyone recognizes as a problem, can our County government function to solve the problem, and achieve its primary goal of delivering services to the community?
The Supervisors have made a good start. The report they prepared was a serious report, recognizes the problem, identified some causes and outlined some potential solutions…. but it’s only words. The next step is to take action. There are challenges and obstacles in the way of achieving meaningful reform and reducing costs
It’s also clear that simply establishing a second tier plan for new hires will have no meaningful cost savings for years. Other half measures and nibbling around the edges simply won’t solve the problem. Any real solution must address the costs associated with pensions of current employees. While this topic is especially fraught with challenges, it’s not without solutions, provided the supervisors are truly committed to solving this problem. The cost of failure is high, and so is the cost of delay, both in terms of foregone services, and in terms of lost trust of the community.
Closing Remarks
“What taxpayers and the community fear most is what happens at the at the negotiating table when on one side of the table are aligned the employees with their union representatives, and on the other side are elected officials supported for election by those same employees’ unions. We’re concerned the interests of the community and the taxpayers are not being adequately represented.
Elected officials need to be mindful that the primary purpose of County government is to provide services to the community. In other words it’s a service provider, not a giant jobs program.
County employees should be compensated an amount that allows the County to attract and retain qualified employees. To pay more amounts to a gift with taxpayers’ resources, which is a totally inappropriate use of public funds?”