Monday, September 6, 2010

Daniel Borenstein: Oakland residents pay huge hidden pension tax

IT'S TRULY a hidden tax. 

As Oakland residents prepare to vote in November on a $360 annual parcel tax aimed at keeping more officers on the streets, they probably don't realize that homeowners already pay more than that in extra property taxes each year just to help fund the pensions for 1,155 retired police and firefighters and their surviving spouses.

In a sobering peek at what could lie ahead for taxpayers across California, the story of the Oakland Police and Fire Retirement System provides a stunning example of the long-term consequences when city officials offer pensions and fail to set aside adequate funds to pay for them.

For now, let's put off the debate over the merits of Measure X, the parcel tax on the November ballot. But, for that discussion, Oakland residents should know that they are still paying for pension miscalculations that began about a half-century ago -- and those payments will last at least another 16 years.

The Police and Fire Retirement System was closed to new members in 1976 when the severity of its financial troubles became apparent. Workers hired after that date were enrolled in a different retirement plan. Consequently, with one exception, all the workers in the PFRS have retired.

Theoretically, pensions should be fully funded when employees retire. Thus, the money in the system now, combined with future investment returns, should be enough to pay the pensions to the PFRS retirees and beneficiaries -- whose average age is 74 -- for the rest of their lives. 

But that's not the case. According to the July 1 actuarial analysis, the system should have $793 million on hand. Instead, it has $298 million, 38 percent of the necessary funds. That's despite nearly three decades of extra property tax payments to finance the system.

Homeowners wouldn't know from looking at their property tax bills that they have been paying extra for the Police and Fire Retirement System. A typical California bill includes a base fee of 1 percent of the assessed value of the structure and land.

On top of that, homeowners must pay their share of voter-approved debt issued by cities, schools, transit and park districts and other agencies. For Oakland property owners, that adds another 0.4 percent. Of that, slightly more than half goes to the city.


Submitted by Lionel Emde

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