California state and local governments face more than $770 billion (market value) in unfunded liabilities for public employee retirement benefits while reporting it to be $243 billion. This amounts to $19,731 per person for each of its 38 million citizens, or $60,000 per household.
According to a study by the Hoover Institute, the biggest challenge is the skyrocketing increases in health and retirement costs. These costs have gone from 28 percent of general fund salary in 2004 to 43 percent of salary in 2015, to an anticipated 58 percent of salary in 2020.
Pension costs are rarely cited as the reason for the tax increases, because doing so may generate more opposition. The typical approach is that additional funding is required for police and fire services, which is true since police and fire pensions are the biggest drivers of rising budget deficits.
"In an effort to circumvent the two-thirds vote requirement for special taxes, some cities and counties have placed majority vote general sales tax increase measures on the ballot along with a companion advisory measure 'advising' local officials how to spend the tax proceeds without actually legally dedicating the tax proceeds for the 'advised' purposes. With this strategy, local officials can spend the tax proceeds any way they want and are not legally bound by the contents of the companion advisory measure," Howard Jarvis said.
Taxpayers are not obligated to pay more in taxes or tolerate fewer services or more debt to bail out fiscally irresponsible city managers. They ignored the warnings and were coerced by the public-sector unions and have boosted pensions by as much as 50 percent over the past 15 years.
The Bakersfield 2016 taxable sales was about $5.7 billion and the basis of the $50 million revenue estimated by the city. It is also estimated that 60 percent of the tax revenue will be generated by the residents of Bakersfield, which will amount to about $130 per household.
The total salaries for the 1,587 city employees on the DB plans amount to $111,469,154 with an additional pension cost of $49,590,612. The employees must contribute 5 percent of their paycheck to the pension, which is based on the final years’ salary that will also include social security.
It appears that our politicians think it easier to increase taxes on 380,000 taxpayers rather than dealing with 1,500 employees and their union. The problem is not revenue but spending on bloated salaries and pensions.
Over a decade ago, California voters approved Proposition 35, also known as the Public Works Project Act of 2000. This proposition granted local government’s greater freedom to pursue partnerships with the private sector on infrastructure projects. As such, the infrastructure arena is among the ripest areas for employing a range of creative privatization techniques.
For services such as public transit, sanitation, parking enforcement and tree trimming, competitive contracting and public-private competition can lead to significant cost savings. West Hollywood saved 28 percent in operating costs and increased revenues by over $2 million from contracting out parking enforcement. Newport Beach saves over $200,000 annually from contracting for tree trimming services.
Private management and maintenance of municipal parks and recreation facilities are commonplace. Nearly 40 percent of American cities contract out for various recreation services.
City Manager Alan Tandy said 13 to 14 percent of $50 million raised by the tax increase would go to CalPERS in the first few years of the increase, with a greater percentage of the money being put into the pension system in later years, after city capital improvement costs had decreased. If the ballot measure passes in November, the council can pass a resolution specifying a specific plan for the money, Tandy has said. If the Hoover report is correct, with pension costs going to 58 percent by 2020, the increase amounts to about $15.8 million for the existing employees.
Ken Weir may be correct that this is only a Band-Aid on an unsustainable problem.
Jim Hansen, of Bakersfield, is a retired mechanical engineer. The opinions expressed are his own.