Compton, California has been making news as the largest city in America (almost 300,000 people) to receive bankruptcy protection. According to most reports, the bankruptcy was caused by a combination of extravagant pensions for city employees and declining tax revenues. On Monday, a California judge held that the city would receive bankruptcy protection, but he deferred deciding whether the city would be allowed to continue paying 100% of its obligations to the state pension fund while forcing all other creditors to accept pennies-on-the-dollar.
From a practical state-wide and nation-wide perspective, this is an important issue because if the city is allowed to cut its payments to the state pension fund, that fund will be put in jeopardy.
From an individual pensioner’s perspective, this issue has reduced importance because most individual pension benefits are guaranteed by state and federal governments.
And finally, from San Antonio’s perspective, Stockton’s predicament is a cautionary tale of what can happen when a city is too generous in providing extravagant pensions.
How much is extravagant? Across California, as reported by Bloomberg News last year, cities were providing pensions that paid 90% of public-safety employees’ top salary after working 30 years, so they could retire and take jobs elsewhere while still in their 50s.
San Antonio wouldn’t be so profligate, would it? Yes, it would. According to a city website:
- The SA Fund‘s defined benefit structure provides benefits based upon the member’s earning history and length of service to the City of San Antonio. Current pension law indicates officers will be paid according to the following schedule:
Years of Service Percentage of Total Average Salary
- Keep in mind pension benefits are available regardless of age. A 21 year old can retire at 51 with 30 years of service and receive an 86 percent pension for the rest of his or her life.
How does this affect the City’s finances? According to Sam Dawson, San Antonio’s 2011 Chamber of Commerce chairman, in a 2012 op-ed piece in the Express-News:
- At present, police and fire personnel make up approximately 38 percent of our city’s workforce, but consume nearly 62 percent of its general fund. The average annual pension cost per civilian employee is approximately $6,800. The average annual pension cost per uniformed city employee is approximately $18,300. Health care costs and benefits are similarly disproportionate. Additionally, in 2012, the city will pay approximately $25 million toward the civilian pension plan for 6,000 employees and $65 million for 3,800 public safety employees. If these costs are not addressed sooner, rather than later, the end result will be less money to hire future qualified police officers and firefighters, fewer city services and a city that suffers economically.
My sentiments exactly.
During my interview with the Express-News last week, I strongly expressed my position in favor of transitioning the City from defined-benefits pensions to defined-contribution pensions, which most of the City’s residents feel lucky to have. As support for that position, I indicated that even the American military is in the process of shifting to a defined-contribution pension.
When the Express-News asked my District 8 opponent Ron Nirenberg about my position, he lamely responded that the idea was worth exploring, but that it should not be discussed in the campaign because would politicize the subject. Instead, he would consider quietly exploring the idea with a task force or study after the election.
Nirenberg’s position reveals a lot about his political philosophy. He thinks “politics” means something corrupted by special interests and that all disagreements will disappear if elected officials are transparent, accountable, and fair and they do their homework.
By contrast, I think that conflicts are inevitable, even among elected officials who are acting with utmost honesty and integrity. Principled differences can’t be resolved by task forces and doing your homework. Instead, they need to be resolved by the ballot box. That is what real transparency means.