More on Bad Decisions
Published: Tuesday, September 22, 2009 3:19 PM PDT
Let's deal with something.
In response to my last post, a couple of you argued that employee benefits are not what we're paying off with this big pension bill, oh contraire.
There was this from NorthPark for instance:
Scott. I hope you are hearing Augmented Ballot, who is right on. You remind me a bit of the UT (Uninformed Trash) writers when you refer to our "big bills" as going to fund the employees' pension. Why do so many seem to discard the Council's decision to UNDERFUND the pension for so many years, which is a big factor in the size of the current bill. The 2.5 % at 55 puts City employees on even footing with other government agencies, not above average. Be more forthright, not SLOPpy
The Pension Reform Committee and other city and pension consultants looked into this in previous years to determine how much of the unfunded pension liability came from investment losses, increased benefits, unplanned or higher-than expected salary increases, and underfunding.
The committee and its actuarial efforts found that 72 percent of the unfunded liability arose from both benefit enhancements and unplanned or higher-than-expected wage increases or benefit accruement. And 41 percent specifically came from benefit increases. Only 10 percent of the liability arose from the city not paying as much as it should into the plan (that doesn't mean it still wasn't ridiculous but we should keep in mind this was agreed to by most employee representatives on the pension board).
Look, the fact is that promising benefits you don't have plans to fund is itself a form of underfunding. So I essentially agree -- the city underfunded the pension plan, which caused this.
The other argument I hear a lot is that the city's benefits are on par with other governments. Yep, and other governments, especially the county of San Diego, are dealing with outrageous pension bills too.
And finally, the last argument is that employees got these pension benefits in place of increases in salary. In essence, they came in place of salary hikes the employees felt they deserved. Hence the term "deferred compensation."
Just like deferred debt, deferred compensation has to be funded eventually. Employees will say, and do say, that the city should simply raise taxes. But when employee leaders were doing these deals -- these deferred compensation deals -- they never went out of their way to point out that we'd have to eventually raise taxes or lay off hundreds to pay for them.
In fact, this was the problem: City management and employee unions expressly didn't want to talk about the consequences of the deals they were making.
They figured that we'd all find out eventually. And they were right.
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