The economic crisis that continues to plague our communities has shined new light on the skyrocketing costs local governments are facing with regard to public employee pension costs. Take Redwood City as an example. Over the next few years, Redwood City may face increases in public employee pension costs upward of an additional $2 million per year — approximately two-thirds of this related to public safety employees.
This is largely due to unprecedented investment losses by the California Public Employees Retirement System, CalPERS. These losses have exacerbated a mounting unfunded liability of the pension system. CalPERS now requires governmental agencies to make contributions upward of 30 to 40 percent of payroll to the retirement system.
An overhaul of the salary and benefits received by public employees needs to take place, as cities cannot simply look for additional revenue or continue drastic cuts in services to balance their budgets. Drastic cuts will jeopardize critical services and diminish the safety and quality of life of our communities. So why not simply look for economic development to generate more revenue?
Cities generate the majority of their revenue by receiving small portions of sales and property taxes collected from within their boundaries. Redwood City receives approximately 63 percent of its revenue from these sources, far out pacing any other source of revenue. Here is a clear picture of what it would take to increase revenue enough just to pay for these projected increases in pension costs:
- Four or five additional big-box retail stores;
- 40 new high-volume fast-food restaurants;
- Another large Sequoia Station-like shopping center;
- Additional assessed land values of $1.25 billion.
In land-starved cities, these developments would not be possible even if the economy would allow business expansion of this magnitude. You can see from these projections that it is unlikely cities can simply count on increased revenue to pay for escalating pension costs.
In Redwood City, our labor groups have come to the table to discuss new salary and benefit programs for their members. We are hopeful those discussions will result in fiscally sound and sustainable compensation programs.
Public employees throughout California must face the reality and come to the table and collaborate with local government leaders to solve this problem.
Jeff Ira is the mayor of Redwood City.