Government Unfunded Liabilities
The Lassen County Republican Party needs to get Assemblyman Keith Richman, M.D. to make a visit to the area. If Dr. Richman does arrive, it should be a mandatory for local government officials with budgetary authority to attend.
On September 28, 2005 I listened to what would be an abbreviated speech on government finance. It is not often that a person running for State Treasurer actually talks about the problems confronting the State.
Governor Arnold told us that he would balance the budget but it appears as if the State will be billions short again. This doesn’t sound like we are making any progress in the fiscal responsibility field.
One of the major problems confronting California is public employee pensions. Before you go off the handle and miss the point, public employees entered employment with the understanding that certain retirement benefits would be available if the employee meets the requirements. That should not change for those employees.
Pension costs are rising. A few years ago the State of California spent a couple hundred million on annual pension costs. Today that number is nearly 10 times that amount. Dr. Richman noted that California is number one in pension costs and that those costs are about 25% higher than the next highest state.
Dr. Richman noted that those employees who have the ability to change jobs for better pay or find a way to “spike†their final year’s pay greatly increase their retirement benefits. The Contra Costa County retirement board is just now addressing this issue.
Dr. Richman noted that today we have an active workforce and a retired workforce. He noted that as we live longer the retired workforce will continue to grow. Dr. Richman noted that part of the problem of the size of the retired workforce was created by reducing the retirement age from 60 to 55.
Government finance professionals also know that the other shoe will soon drop when government units will have to report, in their financial statements, the total cost of the unfunded liabilities for post-employment benefits. This will probably come as a shock to the public.
The Lassen County Board of Supervisors has discussed this issue during the last two budget sessions. The discussions have been in the abstract with no firm numbers being presented. County Treasurer, Richard Egan, has been the leader on this issue. I congratulate Richard for being a forward thinker.
Dr. Richman suggested that some school districts (Los Angeles primarily) and many local governments may have to face bankruptcy because of the size of their unfunded liabilities. This could have a major impact upon California’s economy.
Dr. Richman noted that this is not a partisan issue. It will impact Democrats as well as Republicans.
Why hasn’t this been fixed? Politics as usual. Special interest groups on both sides are influencing our leaders. Even as major corporations restructure their post-employment benefits government continues to compound the costs for our future generations.
Paying for these unfunded liabilities will be a problem. With limited sources of revenues local governments will have to either reduce services to the community or change the benefits offered to new employees.
Sutter County changed its retirement benefits from 2% to 2.7% which moved them from being super funded by $25 million to owing CALPERS about $25 million. That number does not include the other retirement components.
Again, Lassen County’s leaders must invite Dr. Richman to give us his perspective.
