This week Napa County began a process of examining what to do about the enormous deficits in pensions due to the meltdown of the stock market. Pension and actuarial expert John Bartel presented an actuarial analysis on Tuesday to the Board of Supervisors to begin this process.

It appears that the CalPers fund is going to go down about 24 percent this year, with the additional heart ache of not meeting the 7.75 percent expected gains built into the assumptions of the system, a shocking loss of nearly a third of the value of funding.

What that translates into for the county is an increase in pension payments for its employees of between 2-5 percent of payroll beginning in the 2011-12 year, although one suspects it will be much nearer the higher number. Since total payroll is expected to be somewhere in the $90 million range in 2010, the average increase will be between $2 million and $4.5 million per year -- for a term of thirty years.

In other words, since the cost is based on averaging it out over 30 years, this dip is never going to go away unless there is an equally quick and equally large reverse in the stock market in a positive direction. That is highly unlikely, at least any time soon.

This is on top of what we are already paying, about $12.5 million a year, resulting in a payment beginning in two years of most likely $15 million or more per year.

To give some perspective on how much money this is for the county, the entire general fund budget for a year is about $70 million. $15 million a year is over 20 percent of the entire general fund just on pensions. On top of this, budgets are going to be cut all around due to the state’s woesome financial condition, this putting even more strain on the General Fund.

In an atmosphere where taxpayers have seen their pension accounts drop by 30-40 percent it is unfair to expect them to pony up for public employee pensions that are already far more generous than the general public receives. Who is going to shore up my pension for me? Taking more from the paychecks of taxpayers who are suffering the same losses to pay for one privileged group is just blatantly unfair on the face of it.

This is an excellent time for not only the County and City, but also the State of California to approach the unions and CalPers for a change in the pension plans. This is a crisis that brings an incredible opportunity, if only some leadership would take the reigns to approach it. So far, the state legislature and Governor have been totally dysfunctional on this score.

The County can do some things on its own, and the State would be well advised to do the same.

First, the County should raise the age of retirement for safety to 55, for other employees to 65. This would mean huge savings.

Second, employees themselves should pay the extra costs for the pensions, not the taxpayers. The taxpayers are paying enough as it is, in fact too much already. If the unions are not willing to do that, then the benefits should be cut accordingly so that the costs are not increased.

We also really need to look at flat salaries for two years for all public employees throughout the state including here in Napa. No raises in other words. Salaries for taxpayers are going to be more than flat in the next two years and we should all be in the same boat. This will also have a significant effect on pension rates because pensions are based on salary projections.

A final suggestion is to create a two tier system where new employees are on a much more reasonable and sustainable pension plan.

Local governments including Napa’s are very dependent on State law and CalPers rules to control their pension costs, and no ultimate solution is going to come without changes at the state level. The fact is that we have been living beyond our means and this is a fact that is going to outlive any economic recovery.

Regardless of how you feel about tax increases, the huge tax increases that the State is now proposing may provide a temporary band aid, but those increased taxes are going to further exacerbate our economic problems and over the long term are unsustainable. The entire budget will have to be restructured and pension reform should be at the top of the list.

 

Michael Haley is president of the Napa Valley Taxpayers Alliance. He writes a weekly blog on local, state and national issues. He can be reached at napaeagle@hughes.net.

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