Due to lucrative government employee union contracts, pensions for government employees have reached a crisis in the State of California, and are soon to do so in Napa. Currently our local governments have little money to maintain current services, much less add any news ones such as Parks or needed road upgrades, much less quality road maintenance.
Napa County has some of the highest per capita tax collections in the United States, is listed as the highest property tax collections per capita in the state of California, and through high tax rates collects tens of millions in revenue from the tourists which are coming through in very high numbers. So where is all the money going?
80% of the County budget is spent on compensation for employees, and about a third of that is going to pensions. That amount will be increasing dramatically over the next few years. On top of that, right now Napa County has $50 million in unfunded liabilities.
The Center for Government Analysis recently completed a study of pension liabilities on the local level throughout California, as well as the state. Some of the alarming information gathered from that include the fact that right now state income tax collections total $37 billion, and last year $20 billion of that was paid out in current pension payments, for people who have already retired. That does not include payments to pension funds.
In the state as a whole, in the year 2000-01 all governments in California combined paid $3.4 billion into employee pension funds. Just four short years later in 2004-05 that figure was $19.5 billion, nearly six times the amount. Part of the reason for that was the huge increases given to the unions during the stock market bubble, but the rates owed to employee pensions have stayed the same, and in fact by law cannot be lowered. So we are stuck with this for current employees.
What is happening is that the unions have managed to negotiate earlier and earlier retirements at higher and higher rates of pay. (See this.) Most police and sheriff’s can now retire in their 50's with 90% of their highest salaries or more, in some instances with more than 100%. Witness in 2005 after a lucrative new contract was signed that nine police officers retired in Napa at once, all younger than 60. That is nine employees who won’t be working yet drawing retirement salaries and benefits for many years to come, and they will have to be replaced by nine who will work. Napa cannot sustain that kind of cost for employees, at least not without huge tax increases.
Another phenomenon that is happening is that County or City employees retire, then come back to work in another local government job or as a consultant, essentially getting their retirement salary and another salary from the same pool of taxpayers. It used to be that retirement meant you stopped working, now it can mean you simply take a second job and get paid for both.
It is very difficult to get any specific information from the City or County about salaries and compensation, but that is one thing we will be working to do at the NVTA as a starting point. Unless we as taxpayers know exactly what we are paying our employees, it is difficult to assess what needs to be done to make sure we aren’t spending our way into deficits or worse.
We propose the following steps to ensure that employee pensions are fair and maintain financial feasibility:
1. Open up the books and make public where the current pension system stands, what are current and future unfunded liabilities, and what are we actually paying out to who? By the latter what is meant is not names of people, but job categories, years of service, etc.
2. Pass a San Francisco style ordinance requiring any further pension increases to go before the voters. (This article contains a good explanation of the San Francisco plan.)
3. Move toward a defined contribution plan rather than the defined benefit plan that we have now for all new hires. What that means in plain english is that a defined benefit plan is a plan that promises a set amount of money when you retire. A defined contribution means that you are promised a set amount of money each year to be put into a retirement account for you.
A 401(k) is an example of a defined contribution plan. The reason that this type of plan is more financially feasible is that the government would only be on the hook to maintain each years contribution, and would know year to year what its obligations are. When you promise people a set amount of money twenty years from now, which is what a defined benefit plan is, you could end up with any amount and it is impossible to plan for it.
Also, the method of funding for defined benefit plans are the stock market, hoping it will perform well enough that the money will be there when the need comes. To no one’s surprise, the stock market has not met projections across the state, resulting in billions of dollars of unfunded liabilities to California voters. That means that despite voters continually being promised that they will not have to raise taxes to pay for this, they will.
This is a complex area that will require study. Look elsewhere on the site for links to pension information, and we will also be adding further information as we go along.
Also note that Health Care is exploding in cost as well. Much of the problem comes from beyond the county or city. However, there are undoubtedly things that can be done to save money on health care, and perhaps that will be an issue the NVTA can address down the road.
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