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The burden of a 90% public safety retirement benefit

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POSTED May 31, 2009 1:32 a.m.
It did in Vallejo.
    
It could also do major damage to Manteca.

The culprit? The high cost of public safety.

Or, more precisely, the high cost of public safety retirement.

Manteca spends 57.84 cents out of every dollar in the general fund on police and fire services including retirement benefits. That is about normal for California cities that typically range from 50 to 63 cents.

Vallejo though is in excess of 80 cents on every general fund dollar. That is why they were sent into bankruptcy.

Now, however, the State of California’s continuing cannibalism act on local government tax sources – Gov. Arnold Schwarzenegger wants to borrow another $2 billion in local property taxes coupled with the drops in property and sales tax receipts -  is pushing numerous cities up and down the state to the edge.

It should be noted that Sacramento’s “borrowing” is even more debacle than it sounds. They are taking their cut – it is actually a percentage – off the 2008 property tax levels. San Joaquin County is bracing for local governments to take at least a 15 percent hit from declining property values this year. The state, in other words, is borrowing money based on the assumption there is actually more local property tax rolling in than there really is. Then again, what does the state care? They’ll do anything possible to avoid wholesale cutting to the bone of the bureaucracy that is smothering California’s financial and business health.

That isn’t the only reason why public safety retirement funds are posing a big burden on Manteca.

A large chunk of the structured deficit Manteca has stretches back to the 1980s and is seeded in public safety retirements.

Council members at the time weren’t reckless. The problem was they couldn’t secure qualified candidates – particularly for police. And when they did have people who gained experience they were often lured away.

It is a curse shared by other cities as well especially since a reverse commute to law enforcement and fire department jobs in the Bay Area can increase income for a public safety employee by upwards of $25,000 to $35,000 a year. If they didn’t increase benefits and salaries, they couldn’t fill their ranks.

Manteca attacked the problem by aggressively going after retail investment that generates sales tax, the No. 1 source of general fund revenues followed closely by property tax.

As long as the stock market kept the Public Employment Retirement Systems investments paying big dividends, the structured deficit Manteca had – or any other city that is honest about its finances – was in hibernation.

Three years ago that started changing. As investment revenue dropped local agencies share of retirement costs went up. There is only two ways for it to retreat. For investments to bounce back to previous high levels or to reduce future retirement costs.

A change in retirement benefits by Manteca’s public safety workers could save the city $1.6 million annually.

The city has been whittling down a projected $11.3 million deficit for the upcoming fiscal year starting July 1. As of two weeks ago, the deficit had been slashed to $2.5 million through leaving positions open and reorganizing operations plus putting new fees in place. The state is expected to “borrow” $1.2 million in property taxes to push the remaining deficit up to $3.7 million for the next fiscal year.

City of Manteca policy imbedded in contracts calls for a firefighter or police officer to receive an annual retirement based on 3 percent of their annual salary times the number of years they work. Given that public safety employees can pull down full retirement after 30 years on the job, that means they’d get 90 percent of their salary.

That means a public safety worker making 30 years whose salary is $75,000 in their final year would receive $67,500 annually in retirement. That is $5,500 higher per year than the median household income for a working Manteca family.

If the ratio changed to 2 percent per year worked, someone working 30 years that qualifies for full retirement would get 60 percent of their annual salary in retirement or $45,000.

While no one begrudges public safety employees a healthy retirement, it is abundantly clear that it can’t go on for much longer. Just as retirement is helping cripple General Motors, it is doing the same to many municipalities in California.

The choice is simple. It is either negotiate reduced retirement benefits for public safety officers are start laying off even more police officers and firefighters.
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