San Bernardino bankruptcy: Pension debt still a problem for cities
San Bernardino's bankruptcy vote is just another grim reminder that local governments across the state are scrambling to rein in labor costs that keep spiraling upward. A primary driver is the climbing costs of pension pacts negotiated when times were good, city leaders say.
Sacramento City Manager John Shirey said his city is "still not out of the woods" on pension debt but has made considerable strides in recent months to whittle down its labor costs.
New contracts with three of the city's four largest unions closed a $15.7-million hole in the budget that started July 1, Shirey said. But its police union has been a holdout, Shirey said. In coming months the city plans to negotiate reductions in spending on retiree healthcare.
"We certainly don't need to consider bankruptcy,'' Shirey said. "But pension debt is still a serious issue here because CalPERS costs are still going up." That is primarily because of poor market returns, higher benefits for police and fire unions, and the greater longevity of retirees, Shirey said.
"We made the same mistake that everyone else did with high cost police and fire plans,'' he said.
CalPERS, the state's pension giant, recently lowered the assumed rate of return on Sacramento's retirement trusts, a move that will add "a few million" in added costs for the next two years, Shirey said.
"Every time they do that, it's just millions of dollars of costs to us and every other employer. So I can't say we're out of the woods on pension debt."
Pension spending grew at an average 11.4% a year in the state’s biggest cities and counties between 1999 and 2010, roughly twice as fast as spending on public safety, social services, recreation, health and sanitation, according to a February report by the Stanford Institute for Economic Policy Research.
Though dozens of cities, including Sacramento, Long Beach and Santa Ana, have taken steps to reduce their labor costs, the question is whether those changes will be enough to stave off insolvency.
Steve Smith, spokesman for the California Labor Federation, said public employee unions understand the pressure that the recession has brought on city treasuries and are willing to do their part to reduce costs. But changes should come at the bargaining table, not in bankruptcy court, Smith said.
"In over 240 municipalities, they have dealt with costs by bargaining with their unions,'' he said. "This is a sacrifice by workers. They didn't cause these economic difficulties. But they are still willing to go to the table and prevent workers from being laid off and having cuts in services."
-- Catherine Saillant
Photo: Mayor Patrick J. Morris outside of San Bernardino City Hall. Credit: Irfan Khan / Los Angeles Times