Feb 23, 2011 9:28 PM by Nancy Chen

The Problem with Pensions: San Luis Obispo's financial crisis

The new ballot measure on binding arbitration and pension reform is just another chapter in the growing tension over San Luis Obispo's budget.

The San Luis Obispo City Council will let voters decide whether binding arbitration should be repealed; the council also decided to let people choose if they want to give up voter approval to reduce retirement benefits for city employees.

The vote was four-to-one for both issues last night, with Councilmember John Ashbaugh dissenting.

Voters will cast mail-in ballots for an August 30th election; binding arbitration is when a third-party arbiter makes the final decision in a labor negotiation dispute between the city and a union.

Voters approved binding arbitration for police and fire unions in 2000.

It comes at a time when many say San Luis Obispo is at a crucial crossroads, where if things remain as they are now, the city's in big trouble.

San Luis Obispo is currently spending more than 80 percent of its revenues on staff compensation.

It's on track for budget shortfalls of nearly three million dollars a year for the next five years, and solving the problem won't be easy.

City Councilman Andrew Carter says the city is on the teetering edge of an abyss of red ink at the same time so much attention has been focused on the city for being so happy.

"It doesn't mean that if you're in the happiest place in North America that you don't have problems to deal with," he said.

More than 80 percent of the city's projected revenues for this budget year will go to staff salaries, benefits and pensions, up from 68 percent in 2002.

That's $41 million out of a $51 million dollar budget--the same budget that pays for parks, streets and public buildings.

The main drivers behind the increased costs of city employees are pensions and retiree health care.

"Three dollars spent in one area--whether it's salaries, whether it's benefits, whether if it's something else--means a dollar less spent in another area," Carter said.

He said the city's on track to be spending 20 percent of all tax revenue on pensions alone.

San Luis Obispo's financial state raises so many questions, Katie Lichtig, the city manager, commissioned a group called the Financial Sustainability Task Force to look at the budget.

Its report, which city employee unions have called biased, is troubling.

"There are no easy fixes," it said. "It became clear that with few exceptions, even the most optimistic outcomes in these areas would merely nibble at the margins of the city's shortfall."

The task force found that "spending on capital improvement projects--the kind of projects that directly contribute to the high quality of life in San Luis Obispo--has remained relatively flat while staff compensation costs have ballooned."

Carter said the effects are everywhere.

"You cut in your parks and recreation programs, you stop paving your streets, so there are a lot more potholes," he said.

While the amount of money spent on pensions has increased by about $5.5 million since 1993, the money spent on city improvements and maintenance in roughly the same time period has stayed the same at about four million dollars.

"Current revenue and expense trends are economically unsustainable and politically unacceptable," the report concluded.

The task force says the city's pension plans are far more generous than what's typically offered in the private sector.

"Our employees and most public sector employees, not just the city, are going to have a very good retirement compared to the typical working person," Carter said.

Carter says even non-safety employees in San Luis Obispo have higher pension rates than people who work for San Luis Obispo County, Cal Poly and the state.

On average, city employees retire around 57 years old and get around 65 percent of what they earned while employed.

Their retirement equation is 2.7 percent of the highest salary they earned multiplied by each year they were employed.

Pension costs have more than quadrupled in less than ten years, going from $1.8 million in 2002 to $8.3 million today.

The city also contributes to the retirement funds of most employees, including firefighters, and because they don't pay into Social Security, no money is deducted from paychecks for retirement.

Erik Baskin, the president of the firefighters' union, says their pensions are in line with industry standards statewide, and that they, like the police union, have already made sacrifices by forgoing salary increases.

"Both organizations have come to the table and tried to be willing partners with the city through the negotiation process, giving up health insurance increases, freezing salaries, freezing staff positions," he said.

Mike Latner, a Cal Poly political science employee, also warns that cutting too much in the public sector has ramifications.

"When those pensions and funds are cut, then you risk long-term problems with being able to keep talented people in the public sector, which provides important services," he said.

Meanwhile, the only exception to employer-paid contributions are police officers, who give nine percent of their salaries to pensions.

However, Carter says the pay range for those salaries is still more than what Los Angeles Police officers make.

Carter also adds that the cost of living has gone up by 20 percent in the past ten years.

Meanwhile, the cost-of-living salary increases for San Luis Obispo police officers were 50 percent and for firefighters, 39 percent.

Statewide, the average CalPERS annual allowance is about $27,000 statewide.



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