The Sacramento region’s largest local governments will see pension costs go up by an estimated 14 percent next fiscal year, starting a series of annual increases that many city officials say are “unsustainable” and will force service cuts or tax hikes.
The increases come after CalPERS in December reduced the expected rate of return from investments, forcing local governments and other participants in the state’s retirement plan to pay more to cover the cost of pensions.
. . . Leyne Milstein, the city of Sacramento’s finance director, said the city’s pension costs will double in seven years. While city revenues have also increased in recent years, thanks in part to a strong real-estate market, they have not increased as much as pension costs in actual dollars.
“It’s not sustainable,” Milstein said. “These costs are going to make things incredibly challenging.”
Davis’ finance director, former state Sen. Steve Peace, accused Washington of treating Sacramento “like a colony,” contending “it’s nothing short of a confiscatory federal tax policy. It’s no mystery why Californians feel overtaxed. They are.”
That was baloney, even by political standards. If Californians feel overtaxed, it's because of Sacramento politicians and state voters, not Washington.
Backing up Hassett’s assertions, former CEA chair Glenn Hubbard recently wrote in the Wall Street Journal that too many economists fail to consider the share of the U.S. corporate tax burden borne by labor -- 60 percent according to his research. Neither the TPC, the CBO, nor the JTC (Joint Tax Committee) model these results. Instead, they ignore the evidence.
A recent analysis of the House tax plan -- which is nearly identical to the Trump plan -- by professors Alan Auerbach (Berkeley) and Laurence Kotlikoff (Boston University) concluded that it would boost wages by 8 percent. That’s a big number.
It’s the difference between a prospering and optimistic middle class and a pessimistic middle class that lives day-to-day, paycheck-to-paycheck.
This Working Paper focuses on this challenge through multiple case studies, covering both state and local governments. The case studies demonstrate a marked increase in both employer pension contributions and unfunded pension liabilities over the past 15 years, and they reveal that in almost all cases that costs will continue to increase at least through 2030, even under the assumptions used by the plans’ governing bodies—assumptions that critics regard as optimistic. It examines the impacts of increased pension contributions on other expenditures, including services traditionally considered part of government’s core mission. Pension costs have crowded out and will likely to continue to crowd out resources needed for public assistance, welfare, recreation and libraries, health, public works, other social services, and in some cases, public safety.
California governments likely will make do with fewer teachers, parks employees and other public workers while they struggle to absorb fast-rising pension costs in the next few years, a former state lawmaker argues in a study released this week through Stanford University.
Former Democratic Assemblyman Joe Nation projects that many cities, counties and school districts will double their spending on pensions by 2030, “crowding out” their ability to fund public services.
The trend is an acceleration of the swelling pension costs that most California governments have recorded since the dot-com crash in the early 2000s, when pension plans that had been over-funded suddenly had to catch up with investment losses.
“As painful and as steep as these increases have been since 2003, my best estimate is that we are only about half way through these increases,” said Nation, who is now a researcher at the Stanford Institute for Economic Policy Research. “If you’re a public agency and you went from paying $1 million a year to $10 million a year, that’s an enormous increase. You’re likely to go from $10 million to $20 million by the year 2030.”