Eureka Faces Pension Headwinds – Just Like Every Other California City
The city of Eureka on the far north coast of our state is part of a fabled land, far removed from the rest of drought stricken California. The winds that the ridiculously resilient ridge of high pressure push north find welcoming mountains and canyons in and around Eureka, drenching them with rain, nourishing endless groves of the tallest trees on earth, the magnificent coast redwoods. Gushing rivers run through thick green forests scented with maritime air. Downtown, the mansions of the 19th century lumber barons defy time, marvelous, intricate, stunning. And on postcard perfect shorelines, the rugged Pacific surf surges against the rocks. It’s hard to imagine a more beautiful place.
But when it comes to government unions making sure their compensation crowds out any hope of fiscal sanity, Eureka is as ordinary, and as challenged, as every other city in California.
A few weeks ago the California Policy Center released a study “California City Pension Burdens” that compiled key financial indicators for every city in California. When it came to pension contributions as a percent of general fund revenue, the city of Eureka made the top ten. That is, in 2015, Eureka will send 11.3% of its entire incoming revenue from taxes and fees to the giant pension fund, CalPERS.
These findings, covered in the Eureka Times-Standard, earned this rebuke in a guest editorial submitted by Eureka City Councilmember Linda Atkins on March 17th:
“… the California Policy Center, a renowned conservative pressure group disguised as a “think tank” that’s out to push the California public into believing that they deserve government services for free and that a secure retirement is only for those with enough income to provide it for themselves. Their hope is to dismantle all reliable retirement systems, including Social Security, so that you and I will live a frightening old age in poverty, while the execs and corporations rake in the billions.”
One may attack the messenger, or face facts. The city of Eureka has an officially recognized unfunded pension liability of $53 million, which equates to $4,529 per household. That number, of course, does not include the additional liability facing local taxpayers for Humboldt County’s pension liabilities, or local school districts, or state agencies. And if there is another market downturn, these unfunded liabilities and the city’s required annual contribution will go way up.
No reasonable person expects government services to be free. But in Eureka during 2013 the average full time police officer collected pay and benefits – including the city’s contribution to CalPERS – of $110,280; the average full-time firefighter, $120,243 (download spreadsheet). The average pension collected in 2013 by retired city employees with 30+ years of service, public safety and miscellaneous combined, was $58,397. All of this in a town with a median household income of $36,393 and an unemployment rate of 9.7%. It should be possible to question these rates of pay and pensions for Eureka’s city employees while still respecting and appreciating the work they do.
To set Ms. Atkins’ mind at rest, on the topic of retirement security, here are just two of the California Policy Center’s well-documented recommendations for rescuing the finances of cities and counties in California, including Eureka:
(1) Preserve Social Security by enrolling every government employee in the program, subject to the same rules and benefit formulas that apply to current participants. In terms of return on investment, Social Security pays high income individuals far less in retirement compared to low income individuals. Therefore, because government workers make so much more than private sector workers, enrolling America’s millions of highly compensated government workers in Social Security would significantly reduce any eventual financial challenges the system will face.
(2) Preserve defined benefit pensions for government employees by changing the benefit formulas, retroactively, to the precise annual multipliers and retirement ages that were in effect prior to 1999, when pension bankers and unions began pressuring politicians into enhancing these benefits, retroactively, to levels far beyond what is fair to taxpayers or financially sustainable. Alternatively, simply suspend pension cost-of-living increases, change benefit formulas prospectively, and raise employee contribution rates, until the systems are 100% funded.
We invite Ms. Atkins to identify any “right wing pressure group,” anywhere, that supports either of these recommendations.
Atkins is at her most thoughtful when she describes the crash of 2008. She writes:
“Then came the criminal actions from Wall Street that caused the Great Recession, where risky mortgages were “bundled” into investment instruments that were sold to many retirement funds as “safe” investments. Investing in Americans’ mortgages used to be very safe; people were vetted very well before they were given the opportunity to buy a home. Then came Wall Street with “sub-prime” mortgages, giving loans to people who never had a chance of being able to pay them back. The banks then bundled these loans and offered them as stable investments. Then came the crash of 2008. Who got hurt? All the pension fund investors who purchased the bogus “bundles” and of course the rest of America who lost jobs, homes and futures because of the greed and avarice of those Wall Street bankers.”
All true. But what Atkins doesn’t care to admit is that public sector pensions are the last, best con job of the most corrupt among these “Wall Street bankers.” Just as people bought overpriced homes who could never afford to pay them back, pension funds – who are the biggest players on Wall Street – are pretending they can earn high-returns forever. And just like the big bankers, the pension funds expect taxpayers to bail them out.
There is a hypocrisy involved in lumping advocates for pension and contribution reform in with “execs and corporations” who “rake in billions.” Because the high returns pension funds currently earn depend on a rising stock market, jacked up by debt fueled, unsustainable consumer spending. Without corporate profits, corporate stocks don’t appreciate, and pension funds go broke. No profits, no pensions.
The hypocrisy doesn’t end there. When pension funds struggle financially – which they will more than ever when we return to sustainable rates of asset appreciation – the government unions and their supporters call on us to “tax the rich.” But those taxes aren’t for us. Those taxes are to pay government employees twice as much, or more, as ordinary private citizens.
But all of this is far too big to constitute a “sound bite,” so none of it can possibly be true, right Councilmember Atkins? It’s easier to suggest that any criticism of pension excess must emanate from a “right wing pressure group.”
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Ed Ring is the executive director of the California Policy Center.
Transparent California listing of CalPERS participating employers
(includes average pension for 30+ year participants)
Transparent California listing of city of Eureka individual retiree pension recipients