NCPA - National Center for Policy Analysis

Pension Payments Are Killing City Services

June 2, 2015

The Governmental Accounting Standards Board is implementing new rules that require governments, for the first time, to report unfunded pension liabilities on their 2015 balance sheets. This sticker shock should create new urgency for meaningful pension reform. A recent study put the unfunded pension liability for all state and local governments at $4.7 trillion. For too long, pension fund officials and politicians have increased payouts and low-balled contributions. As a result, they now have insufficient funds to pay the promised benefits.

California reveals the damage from long-term financial mismanagement of pension systems. Overall from 2008 through 2012, California local governments' pension spending increased 17 percent while tax revenue grew only 4 percent. As a result, a larger share of budgets goes to pensions, crowding out spending on core services such as police.

Skyrocketing pension costs cause public libraries, parks and recreation centers to shorten their hours or close. A new pension rate hike for California's local governments will cost the city of Sacramento $12 million more a year ― the equivalent of cutting 34 police officers, 30 firefighters and 38 other employees.

Former San Jose Mayor Chuck Reed is leading an effort to craft a statewide pension-reform ballot measure in 2016. One needed change is to give state and local governments the option of adjusting future pension benefits for all employees, including a switch to 401(k)-type plans, which are more affordable and always fully funded.

Swelling pension costs are like tapeworms, starving the public of municipal services. The new accounting rule will provide needed transparency, but action must follow.

Source: Lawrence J. McQuillan, "Pension payments are starving basic city services," Sacramento Bee, May 28, 2015. 


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