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.”
The dispute over methodology explains the importance of this summer’s research on Seattle’s minimum-wage experiment. The city’s wage floor, previously about $9.50 an hour, has been raised to $13 and is on its way to $15. A comprehensive study by academics at the University of Washington estimated that the higher minimum “reduced hours worked in low-wage jobs by around 9 percent.” Consequently, earnings for these employees actually dropped “by an average of $125 per month.” What’s especially inconvenient for minimum-wage proponents is that the Seattle study used a “close comparison” method similar to the one they have favored for years. The authors of the study compared workers in Seattle with those in other metropolitan areas in Washington, like Olympia, Tacoma and Spokane. To no one’s surprise, that hasn’t stopped minimum-wage supporters from attacking the Seattle research. In a June letter to city officials, Mr. Reich, the Berkeley professor, wrote that the study “draws only from areas in Washington State that do not at all resemble Seattle.” But this gives away the game: Any researchers doing this kind of study should explicitly choose control areas that show similar trends, as did the University of Washington team. More to the point, if the controls for Seattle can’t be trusted, it undermines the whole idea of “close comparison.” Criticizing the method only when it delivers evidence against minimum wages suggests the motivations here may be ideological rather than empirical.
The Supreme Court said Thursday it would consider whether public employees can be required to pay union dues, revisiting an issue that deadlocked the court after Justice Antonin Scalia’s death last year.
Under a 1977 Supreme Court precedent, states may authorize contracts between public agencies and their employee unions that require represented workers to pay dues, or an equivalent fee, for collective bargaining costs.
California schools are on the hook for $24 billion in future health care costs for their retirees, a mountain of debt that's forcing some districts to curb benefits or spend less on teacher salaries and classroom equipment, according to a new state report. Los Angeles Unified School District boasts a whopping 56 percent share — or $13.5 billion — of the unfunded liability, although it educates nine percent of California's public school population. It's historically provided some of the most generous retiree health benefits, including lifetime coverage for retirees and their spouses. Teachers' union representatives argued good health care is an essential tool for recruiting and retaining teachers. But the looming debt means newer teachers are offered skimpier benefits and less money is available to spend in classrooms.
The City Employees’ Retirement System board, which oversees pension benefits for thousands of city workers, voted unanimously to cut its assumed rate of return — the yearly earnings expected from the agency’s investment portfolio — to 7.25%, down from 7.5%.
The decision is expected to shift $38 million in retirement costs onto the general fund budget, consuming funds that would otherwise pay for basic services. And it comes at a time of increased concern over the city’s growing pension burden.
Another pension agency, which oversees benefits for thousands of retired firefighters and police officers, recently reduced its own rate of return and recalculated the expected lifespan of its beneficiaries. Meanwhile, growth in the overall city payroll is also expected to push pension payments upward.