Back in September, the Los Angeles Times, Sacramento’s public radio station, and CALmatters, a non-profit news service, combined to produce a compelling series of stories on how politicians had dug California’s public sector pensions into such a deep hole.
It’s mandatory reading. And more recent developments illustrate why pension funds in California, Colorado, and elsewhere will have such a tough time digging their way out.
Here’s the crux of last fall’s story:
With the stroke of a pen (in 1999), California Gov. Gray Davis signed legislation that gave prison guards, park rangers, Cal State professors and other state employees the kind of retirement security normally reserved for the wealthy.
More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived.
Proponents sold the measure in 1999 with the promise that it would impose no new costs on California taxpayers. The state employees’ pension fund, they said, would grow fast enough to pay the bill in full.
They were off — by billions of dollars — and taxpayers will bear the consequences for decades to come.
In 2016, state employee pensions cost California taxpayers $5.4 billion — more than 30 times what the state paid for retirement benefits in 2000.
“If you’re asking me, with everything I’ve learned in the last 17 years, would I have signed SB 400…. no, I would not have signed it,” Davis, now 73, said in a recent interview at his Century City law office.
How did this happen? It’s a long an sordid story, ably chronicled in the series. In a nutshell, though, the bursting dot.com bubble tanked investment returns, and then, just as matters seemed to be improving a bit, the Great Recession hit.
It’s a familiar story, played out on a much larger stage than Colorado’s.
But here’s where it gets even stickier. Last week, California Governor Jerry Brown announced that in 2017, state contribution to CalPERS and other state retirement plans would increase by another $524 million. This is a direct result of the CalPERS board taking a moderate but necessary step to lower the projected rate of return on pension fund investments, from 7.5 percent to 7 percent. If returns are lower, money to make up the shortfall has to come from somewhere.
And that somewhere is taxpayers’ pockets.
Remember that the Colorado PERA board in November lowered the fund’s expected rate of return from 7.5 percent to 7.25 percent. We’ve argued that this was too modest a cut in assumptions, but even so, it will cause some budgetary pain.
Now read Saturday’s excellent Denver Post story on other state and local budget headaches. Then reach for a bottle of aspirin. Or something stronger.