Ever rising California government pension costs are reducing the funds available for basic government functions. Things like education, healthcare, public works and public safety. According to a recent study by Joe Nation at the Stanford Institute increased pension costs are going up faster than revenue. The study findings show that between 2003 and 2018 employer pension costs grew almost ten times faster than general fund income. No wonder basic government services are being cut. We expect our taxes to pay for police and firefighters not out of control pension expenditures.
So how did the cost of state and local government pensions get so out of control. For one thing, workers in the public sector are eligible to retire by age 55. As a result, we are paying these retirees for a much longer period of time and therefore costing a lot more. Also these government pensions are simply too generous. Many employees can retire with pensions equal to three quarters of their highest salary. Finally, government pensions are fixed and currently can never be modified. In this era of low interest rates there is not enough income on government investments to pay for public pensions at their current level of payouts.
In many government jurisdictions pension expenses are almost 20 per cent of the budget and going up fast. This is unsustainable. As a result, some cities are on the brink of insolvency. Other cities like San Bernardino and Vallejo simply went bankrupt as an unfortunate answer to out of control pensions. During this current election cycle the pension crisis should be pushed to the forefront of public debate.
Whether it is raising the retirement age or phasing out fixed pensions in favor of 401k plans. These solutions and many others need to be part of candidate platforms. If candidates do not have public pension reform high on their agenda, they probably are not worth electing.
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