But smile in the face of danger: Thanks to unpleasant prodding from CalPERS, they'll be painfully paying down that debt in coming years. It will hurt -- likely impacting programs for
This latest in local public pension number-crunching comes courtesy of the
"The 2013-2014 Grand Jury is aware that there is a political element to any discussion of unfunded pension liabilities," it said up front. "Unions may view the problem as being exaggerated as a means to weaken the power of public employee unions and strip hard-won benefits and influence future negotiations. Others are concerned with the affordability of pensions that many people describe as 'generous.'" (We at The Watchdog cop to that last part).
"The public commitment to addressing the issues in a timely manner and accepting some pain now and not pushing the issues off to the future must be in place," the grand jury continued in a slightly-scolding tone. "If unfunded pension liabilities are not addressed, cities could reach a crisis where outcomes are painful enough that they affect the quality of life in
--They have set aside
--That, unfortunately, leaves them the aforementioned
--On average, O.C. cities have just 68.2 percent of the money they'll need stashed away -- far less than the 80 percent figure many strive for (though some experts say even 80 percent isn't good enough).
--The most underfunded city is
--The most well-funded cities are
--For a great many, what they owe exceeds what they spend in an entire year; for some, it exceeds what they spend in two years.
Why should you care? These retirement benefits are guaranteed. If there's not enough money in the pot,
"Money spent by OC cities to deal with unfunded pension obligations necessarily comes at the expense of other services cities provide to their residents," the grand jury wrote. "Catch up contributions to amortize these unfunded liabilities can be a significant expenditure in a city's budget, and the growth and unpredictability of these unfunded liabilities make it difficult to budget for future years.
FUN WITH MATH
Now, measuring the depth of pension holes is as much art as science. How to compute the value of current investments -- by fair market value, or by egghead actuarial value? And how much interest do you expect to earn on those investments each year -- as much as 7.5 percent, as little as 5 percent? How long do you expect people to live?
The answers to those questions grow or shrink the hole. So it's a bit like gazing into a crystal ball.
Of course, what counts right now is how the
It lowered the expected rate of return on investments (which deepens the hole). It's going to increase expected lifespans for retirees (which deepens the hole). It's using market rather than actuarial value for investments (which deepens the hole).
If you just use actuarial (rather than market) value for investments, the hole for O.C. cities instantly shrinks $1.4 billion! the grand jury noted. Down to
But enough daydreaming. The economic recovery has indeed translated into revenue increases for cities -- but those increases will likely be consumed playing catch-up on unfunded pension liabilities. "For example, one city's internal budget shows pension contributions ramping up from 8 percent to 12 percent of their General Fund and remaining there for several years and then ramping back down to 8 percent," the grand jury wrote.
Public workers are in no way insulated from this pain. They're kicking in more for their retirements, just as cities are, but one popular move may backfire on
To ease the blow, many public agencies are offsetting newly-required worker contributions with salary hikes. Which can make the picture worse.
"(T)he city of
"The catch is that the employee will now have a base salary at retirement 3 percent higher than the pension system had been assuming in predicting its pension payout to that employee. This increased pension payment will be made for the remainder of that employee's life, i.e., a new unfunded pension liability has been created," it warned.
None of this is news to public agencies, which are doing all sorts of hat dances to make things work. One of the most interesting might be in
A year ago,
This results in a virtuous cycle of savings. The early payoff will save
The grand jury admittedly didn't address the other elephant in the room -- promises to pay for retiree medical care, "an issue which deserves attention similar to that needed for pension funding," it said. Agencies are at least stashing money aside to pay for pensions; almost nothing has been set aside for health care. But that's another story.
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