CalPERS’ dismal investment performance will wreak havoc on weakening municipal finances unless our elected officials begin taking aggressive actions today.
The Los Angeles Times has published another excellent article in its series on “California’s Pension Crisis.” In a piece entitled “Cutting jobs, street repairs, library books to keep up with pension costs,” Judy Lin chronicled why the City of Richmond may soon find itself declaring bankruptcy because of CalPERS’ recently announced downward adjustment to its expected rate of return.
Although Richmond may be several hundred miles away from Santa Barbara, its financial plight is uncomfortably close to home. Before CalPERS announced its downward adjustment, Richmond had already witnessed a 76% increase in its pension costs in the preceding 5 years. As a result, the City had already cut positions, services, and library expenses. Despite these efforts, it faces a widening structural deficit in its general fund that is only going to get worse as it absorbs the additional pension costs required to cover CalPERS’ poor investment performance. It is on a path to bankruptcy.
In Santa Barbara County, our municipalities resemble Richmond far more than our elected officials would care to admit. Before the CalPERS announcement, the City of Santa Barbara was already reckoning with potential spending cuts to offset its increased pension costs as well as a sales tax increase to generate the revenue required for minimal infrastructure maintenance. This combination of spending cuts and tax increases is just the tip of the iceberg. In Santa Maria and Lompoc, the dramatic increase in pension costs over the past three years has already placed both their general funds in structural deficits and led to painful budgeting decisions like those in Richmond. These two cities are already struggling to provide the services their residents expect. But the worst is yet to come as pension costs explode in the years ahead. To see the dreary future for many of our communities, one only need remember the recent past – the downward spirals of Vallejo and Stockton.
The Los Angeles Times, therefore, is not being hyperbolic when it refers to a “pension crisis” across California. In the Santa Barbara area, we are beginning to bear the full brunt of the fiscal storm that has been approaching for almost 17 years. If we are going to weather it, we need our elected officials to take aggressive steps today to reduce retiree healthcare and pension costs (via negotiation and/or legal reforms), continue to cut unnecessary or ineffective public spending, and promote economic development that will generate tax revenues for local governments that can be used to restore essential services and invest in the future.