Pension reform is a complex controversial topic. Historically future pension obligations were not required to be shown by auditors as unfunded liabilities and were ignored. Based on current auditing standards, all governmental agencies are forced to address the problem of the impact of generous pensions. The issue is made more complex by the fact that government employees are generally paid less than are private sector workers but are attracted to public service by the pensions, health benefits and other benefits provided. Moreover, the rights to the benefits vest after an initial period of employment. While there are court cases pending which try to modify the vested rights doctrine, it is, generally speaking, not possible to unilaterally take away benefits from employees who are vested.
Many counties and cities have faced the music and made plans on how to address the issue. A Grand Jury report was issued in conjunction with a companion report, County Pension Costs – Hard Choices Paying Off. Both reports are available on the San Mateo County Court/Grand Jury website here. The Grand Jury concluded that throughout the COWnty soaring pension costs are seriously cutting into municipal budgets and causing a serious threat to our public services.
The Grand Jury found that the 20 cities and towns that make up San Mateo County spent a total of $102 million on pension plans which is an average of approximately 13.6% of their general fund spending. As bad as this is, CalPERS expects pension costs to double in seven years. Some options, described by the Grand Jury to pay these rising costs include reducing employee salaries and benefits, lay off employees or cut public services. Where staff is unionized it may be possible to negotiate employees share of pension costs or lastly it may be necessary to increase revenues from taxes.
San Mateo County itself has made some of these hard choices which are working.
The Grand Jury recommended that, by June 30, 2019, each City develop and publish a long-term financial plan to deal with rising pension costs, and update that plan annually. The report required a response from cities. including Woodside, which sent a response letter in October 2018. In its formal response, the COWncil committed to take up the topic of pension costs and development of a long-term plan in conjunction with the Mid-Year Budget Review, early in 2019.
The Grand Jury recommended that the plan should include:
• Specific objectives, such as identifying a target Funded Percentage,
eliminating the Unfunded Liabilities over “n” years and maintaining
the City’s share of Normal Costs at “n” percentage of payroll.
• Policies to achieve these objectives.
• Specific measures to implement the policies.
• A process to monitor progress in implementing the measures and in
achieving the objectives.
• Consideration of alternative policies and measures, or a “Plan B,”
that may be used in the event that CalPERS’ actuarial assumptions,
especially the Discount Rate, are not met in future years.
While the COWncil committed to achieving this end, it did not discuss how to do so. Will there be a subcommittee which can spend the considerable time in the next few months studying the issue? Since staff has a clear conflict of interest, will an independent consultant be brought in? How many public meetings will be held so COWs can weigh in on this critical issue? We hope that this will issue will be given the very careful and serious consideration which is clearly necessary.