Mar 14 2012

More California Cities Face Ballooning Public Employee Benefits or Bankruptcy

Bankruptcy Looms for Bay Area Cities –

California cities that fail to rein in their costs continue to struggle with the prospect of bankruptcy.  San Carlos and Half Moon Bay narrowly skirted bankruptcy by outsourcing city services such as law enforcement and recreation management.  Hercules and Lincoln are currently attempting to restructure their debt and cut employee costs to avoid bankruptcy.  Vallejo filed for bankruptcy.

Stockton may be next.  Stockton is entering into a mandatory mediation process with unions, with bankruptcy as the next step.  Read the full Los Angeles Times article.  The Stockton City Manager cited lower housing prices, the rising cost of public employee retirement health benefits, and poor fiscal management for the city’s uncomfortable position on the brink of insolvency, despite its high tax rates.

Stanford University studied California’s local pension systems last year and recently announced their finding that they are under-funded in the amount of $130 billion.  San Diego and San Jose are attempting to reform their pension plans.  Governor Jerry Brown said local and state public employee pension systems are unsustainable.


5 Responses to “More California Cities Face Ballooning Public Employee Benefits or Bankruptcy”

  1. what are Piedmont’s pension and benefits numbers by department.

    This should be public knowledge.

  2. State pension funds are time bombs soon to explode. They are grossly underfunded and the tax payer will have to pay the bill. Here is the reason.

    Public pension funds such as Calpers use assumed rates of return to calculate the present value of future retirement benefits and how much money participants need to contribute to pay for them. Now here is a link to a WSJ table showing the assumed rate of return used by major pension funds:

    An 8% rate was for sure easily achievable with Madoff, Allen Stanford, and mortgaged back securities. But today!

    Remember that cities are at the end of the food chain. The Federal Government faced with $1,300 billion dollar deficit and lacking political backbone will push expenditures to the states (soaking the rich and closing the tax loopholes for the oil companies will only raise as per the administration $300 billion). The California State is in very bad shape after having distributed money to public employees in good times. Also lacking political will, it is squeezing the cities.

    Refer to WSJ article: Calpers Lowers Investment Target to 7.5%.

    Bernard Pech

  3. In response to Patricia, here are two links to charts that Tim Rood published during his (alas!) unsuccessful campaign to the City Board.

    Bernard Pech

  4. Piedmont’s pension and fringe benefit packages are some of the most generous in the state. Taxpayers pay both employer and employee contributions to the pension plans. Plus the rest of the package (medical/dental/etc.) is nearly 100% taxpayer financed, plus allowing employee children to attend local schools (financed by our very expensive school taxes). To date City Hall has only addressed the supply side of the equation, asking taxpayers for more money. With the failure of Measure A, it must dawn on both our elected officials and City Staff that the never ending supply of taxpayer money may have reached the breaking point. The demand side of controlling costs must be addressed.

    Indeed, that Tim Rood was not elected is quite unfortunate.

  5. Even more information on Piedmont finances, expenditures and revenues is available at:

    This links to the Municipal Tax Review Committee report which provides an extensive analysis of Piedmont’s revenues and expenses and a 5-year projection of Piedmont’s financial position. I recommend Piedmonters read at least the executive summary of the report to understand the fiscal issues Piedmont faces. I also recommend Exhibit 1 on page 22 which provides a comparison of Piedmont expenditures with other comparable Bay area cities.

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