Rising Pension Costs Drowning Calif. Cities

SACRAMENTO (CBS13) -- One California city has already declared bankruptcy. More and more communities are losing police officers, firefighters, libraries and parks, and the math is really quite simple: Our cities are spending more money than they're taking in.

Most California cities are spending way more than they can afford on pensions, and the growing financial burden is already breaking the bank in four cities.

The situation in Vallejo is an extreme example of what other cities have been dealing with since the housing bubble burst. Since 2006, home prices have fallen 63 percent, causing property taxes to dry up and forcing the city to declare bankruptcy.

Mayor Osby Davis said officials were forced to lay off nearly 100 city workers and 40 percent of the police force, and the city is continuing to struggle to pay for pensions in the future.

"People are being laid off in major cities all around this state and this country, and all of a sudden they're saying, 'Oh, this is really real. There is a problem with our pensions,'" Osby said.

"We don't live within our means, and that's because we've gotten used to getting what we want, when we want it. And it's gotta change," he said.

According to a recent report by Stanford researcher Joe Nation, "[b]y 2016 San Francisco will be spending more on pensions and retiree health care than they're spending for police, fire, the district attorney and the public defender."

In Costa Mesa, city leaders say their problems are so bad that they recently sent out layoff notices to 203 city workers, nearly half of their entire work force.

"It's devastating," said Helen Nenadal, who received one of the notices. "I have two kids in college and my husband's out looking for work right now."

On the day those layoff notices went out, one city worker who received the notice went to the top floor of the Costa Mesa City Hall and jumped, falling five stories and taking his own life.

Costa Mesa City Councilman Stephen Mensinger said pensions have simply grown too expensive. Five years ago, the city was paying $5 million a year for city workers' pensions; now, the city is paying $18 million a year, Mensinger said.

In five years, they'll be paying up to $25 million a year for pensions, which amounts to about 25 percent of their entire budget, he added. Pension costs have already ballooned to where the price of employing one Costa Mesa police officer -- including salary, overtime, health care and retirement benefits -- costs the city $172,000 a year.

"What we're dealing with here today is what every city in California is going to deal with at some point in the future," Mensinger said.

Alex Rubalcava, an investor who has been studying Los Angeles' pension obligations for five years along with former mayor Richard Riordan, predicts the City of Angels will declare bankruptcy by 2014, in large part because of skyrocketing pensions.
In 2002, L.A. paid $250 million into the city pension fund. Last year, the price tag shot up to $1 billion, and by 2013, the pension price tag in L.A. will soar to nearly $3 billion a year, Rubalcava said.

"We're going to be dealing with this mess and this problem for decades," he said.

An Alabama city that already reached the breaking point in 2009 simply stopped paying pension checks to retirees altogether.

Alfred Arnold, 66, was Prichard, Alabama's first black firefighter and retired as a Captain after 35 years of work. He now works as a security guard at a shopping mall to pay the bills.

"If it hadn't been for my job at the mall as a security officer, we probably couldn't even eat," Arnold said.

His wife, Jackie, was the first female officer in the Prichard Police Department and retired in June 2009 after 40 years of work. Her pension checks stopped arriving in the mail in September 2009.

"I think I received two pension checks and nothing after that," Jackie said. "They said, 'We will come up with something,' but nothing ever happened."

Vallejo Mayor Osby Davis said he can't say his city will be able to avoid a similar problem.

"It's foreseeable in any city," he said.