[San Mateo County] Unfunded pension liability presents grave risk for all

There is very little in the annals of government prose quite so incomprehensible as a discussion of public retirement benefits and just how to pay for our own largess, past and present. Consider this bit from a San Mateo County civil grand jury report that came out on Tuesday:

As the county and incorporated cities report NPLs one year later than SamCERA and CalPERS, low returns will be reflected in their Fiscal Year 2016-2017 NPLs. Planned decreases in SamCERA and CalPERS long-term assumed ROIs will have unfavorable impacts on calculated NPLs in future years …

And so on and so forth.

Nevertheless, the grand jury has done an important thing. It’s attempting to highlight what we can learn following the adoption of new accounting rules that force counties and cities to reflect unfunded retirement benefits on the balance sheet. (In the past, the true cost of public employees, including their retirement benefits, was hidden from public view.)

What did the grand jury find? There is not a single city in the county able to fully fund retirement for past and current employees without curtailing programs or raising taxes. The county can’t pay for retirement either. This isn’t a surprise. At the national level, the Federal Reserve Board has estimated the U.S. government has a $1.8 trillion obligation and can reasonably expect to pay less than half that total. It suggests state and local governments owe another $1.3 trillion with the ability to pay 75 percent of it.

In California, the Public Policy Institute of California suggests the two largest public retirement benefit organizations in the state — CalPERS and the California State Teachers Retirement System — together carried unfunded liabilities of more than $136 billion in 2013-2014, the last year for which figures could be compiled.

This rarely comes up when local governments seek to add employees, as Half Moon Bay is doing in the coming fiscal year. Unfunded pensions are someone else’s problem. Are you going to hold past City Council members responsible for pensions for a police force that no longer exists? How, exactly?

Yet, these unfunded liabilities have the power to cripple local government now and in the future. As the grand jury points out, “If invested plan assets prove to be insufficient to satisfy retirees’ guaranteed benefits, adverse consequences may include increased taxes and user fees, decreased funds available for local government services, and municipal bankruptcy and consequent default on municipal bonds.” It might also add the risk for former public employees who have every right to think the government will make good on past promises.

This is important stuff. Please put on a fresh pot of coffee and take a look at the grand jury report. It’s available at sanmateocourt.org, then click on “2016-2017 reports.”

June 28, 2017

Half Moon Bay Review

Opinion by Clay Lambert