Taxpayers should be alerted to the long-term costs of budget-balancing tricks being performed in the City of Angels. Taxpayers stand to lose a bundle.
Los Angeles officials are loathe to make necessary spending cuts to balance the budget. Instead, they plan to increase retirement benefits of city employees to the tune of $146 million to gain $35 million in employer (taxpayer) contribution "relief." This does not include the $100 million in extra funding taxpayers will face if contributions to the retirement system are deferred.
This is a good deal for public employees, who can retire earlier, and with richer benefits. It is doubly a good deal for elected officials, who can duck making unpopular budget decisions and also see their own retirement benefits increased. But, for the taxpayer, it is a lousy deal.
Normally, the city would contribute $134 million in the budget year to the City Employees' Retirement System (CERS). This is the amount actuaries deem sufficient to fund agreed-upon retirement obligations that have been inadequately funded in the past. Now, the City Council, public employee unions and the CERS board have hatched a scheme to reduce the city's contributions by $35 million.
In the new math of public finance, this is listed as a $35 million savings for the city's budget. Astute taxpayers will realize, however, that failure to fund the system now increases costs for future generations. Indeed, shorting the system as proposed will add $100 million to the overall cost of an already costly retirement program.
Typically, labor unions protest this type of pension underfunding. However, the deal was negotiated in June and July, leaving the City Council with what one official described as pro forma ratification during August. Major media felt it was worthless to try to stir the pot with critical commentary. In short, the train had already left the station.
Too bad.
Where was the outcry from public employees and their representatives over what was proposed? The silence of city employees was guaranteed by benefit enhancements proposed by (more) city officials. Career employees, for example, will be allowed to retire as early as age 50 under the council's proposal, with unreduced pension. The cost: $19.2 million.
A new $55.9-million obligation is incurred by enriching retirees' health benefits. Early retirement penalties are relaxed, at a cost of $25.5 million. Burial allowances are increased fivefold, at a price tag of $14 million.
The California Taxpayers' Association (Cal-Tax) and its affiliate, the Los Angeles Taxpayers' Association (LATax), believe city officials should have found ways to deal with this year's budget problems without saddling future taxpayers with unacceptable pension obligations totaling a quarter-billion dollars.