Sunday, July 29, 2012

Oakland - the cost of borrowing money to fund city pensions

Pension funding seems to be a common problem for many cities, including Pacifica.

San Francisco Chronicle/Matthai Kuruvila, 7/29/12.  "Oakland's financial time bomb:  pensions."

We sold you a bridge
"It was 1976 when the city of Oakland realized it had a major problem on its hands: A pension created 25 years earlier to benefit police officers, firefighters and their widows was proving too costly to afford. So the city closed the plan to new employees and later passed a parcel tax to pay for the pension. Yet today, that pension remains the source of one of Oakland's biggest headaches.

....  Last month, the majority of the Oakland City Council, at the urging of Mayor Jean Quan's administration, voted to borrow money once again to cover the pension bill - $210 million in new pension bonds that will cost another $105 million in interest over the next 14 years. But the loan will allow the city to avoid paying for the pension from its general fund for four years. If the city hadn't borrowed the money, it would have been forced to take $38.5 million from its roughly $400 million general fund to pay for the pension this year. Such a move would have required deep cuts to city services, which already have taken a hit due to the slumping economy, state budget cuts and redevelopment shutdown.   

Oakland downtown area
....  In four years, other city debts will retire, making it easier to make the annual payments, said Scott Johnson, a deputy city administrator. But Councilwoman Libby Schaaf, who voted against the bonds last month, criticized the idea of paying $105 million in interest to avoid a $38.5 million payment into the pension fund this year."  Read Article.

Related article and CalPERS rate of return graph 1990-2012  The Oakland Tribune/Editorial/Bay Area News group, 7/19/12 "Oakland Tribune editorial"  Pension system must stop using overly optimistic forecasts."  "...The announcement this week by the nation's largest pension system that its investment earnings for the past year were a dismal 1 percent should be interpreted with caution. The returns for just one year tell us little about the long-term health of the system." 

Submitted by Jim Alex

Posted by Kathy Meeh


Anonymous said...

I wonder if any city employee's read these blogs and connect the dots?

Hutch said...

The government unions tell the employees there is no problem. And they believe it until the city files for bankruptcy. They think the solution is to raise our taxes so they can get benefits we in the real world don't get. All the while cities are forced to cut programs for the underprivileged and services for all of us so they can scrape up enough money to to pay off the unions.

todd bray said...

Our city employees read these blogs. I've been contacted by a few. I've been told they understand the need to reduce compensation and think the one percent for every $10,000 is reasonable but can't do it all at once.

I kind of said that we all did whether we wanted to or not. We being regular workers, not publicly funded ones.

They get it, they just want the change to be very soft and gradual.

Anonymous said...

Sacre bleu! Soft and gradual is exactly what the city has in mind, too. What are the odds? And when does that state controller's report for city salaries for 2011 become available. I want to do a little comparing and see all those pay cuts in black and white. Pay cuts.