California already learned this expensive pension lesson

Capitol Weekly welcomes Opinions on California public policy or politics. Please read our guidelines for opinion pieces before submitting an Op-Ed. Submissions that do not adhere to our guidelines will not be considered for publication. 

OPINION — As mayors, our jobs are not only to provide safe and vibrant communities today, but safe and vibrant communities tomorrow. When we pass our budgets, we know that those decisions become tomorrow’s realities. 

Over the last decade, local agencies have inched their way out of oversized pension liabilities thanks in part to hard-fought pension reforms. But new legislation could reverse that progress and create billions of dollars in new long-term costs for cities and taxpayers.  

Passed in 1999, SB 400 greatly expanded public employee pension benefits on the assumption that strong investment returns would cover the costs. They didn’t.

The dot-com collapse and the Great Recession exposed the risks of those assumptions. Pension liabilities grew, taxpayer costs increased, and local governments devoted growing shares of their limited budgets to retirement obligations.

In response, California enacted the Public Employees’ Pension Reform Act (PEPRA) in 2012. The act created important guardrails that are still saving cities and taxpayers billions of dollars. 

According to CalPERS, PEPRA generated approximately $5.8 billion in savings by 2024 and is on track to generate roughly $26.5 billion more over the next decade. But AB 1383 would begin unwinding that progress. 

Now is not the time to take a step backward on pension sustainability.

Much of the discussion surrounding AB 1383 has focused on police officers and firefighters. But the bill goes far beyond public safety. Its largest automatic cost increase comes from raising the pensionable compensation cap for all employees hired under PEPRA. Supporters argue the bill will help recruit and retain public safety personnel. If recruitment challenges exist, they should be addressed. But there is little evidence that expanding pension benefits for everyone is the most effective solution.

More importantly, AB 1383 creates a new problem. Once one city adopts richer pension benefits, neighboring jurisdictions must match them to remain competitive. What begins as a local decision can quickly become a regional expectation, driving costs higher for all taxpayers.

Before California takes that step, policymakers should ask a simple question: Is expanding pension benefits for public employees statewide the most effective and fiscally responsible solution for a recruitment problem

CalPERS estimates that AB 1383 could create approximately $8.2 billion in new costs for employers in the CalPERS system. But that estimate does not include independent public retirement systems or the 21 county retirement systems operating outside CalPERS. The true statewide cost is almost certainly higher.

These costs translate into difficult choices. Every pension dollar comes from the same budget that funds road maintenance, parks, public safety equipment, community programs and infrastructure improvements. 

Should AB 1383 become law, cities like Napa will take on significant, ongoing general fund costs, forcing them to choose between maintaining public safety and maintaining other essential services. 

In La Verne, AB 1383 could increase the city’s annual pension costs by about $400,000 to $600,000. Should the optional enhanced formula be adopted, annual costs could exceed $1 million. At a time when the city is already addressing structural budget deficits and escalating pension obligations, these new costs will significantly impair La Verne’s ability to provide essential public services.

Perhaps the strongest argument against AB 1383 comes from the governor who led California’s pension reform effort.

“Every year there’s an effort to achieve more benefits for the organizations, and some organizations like firefighters have a much more compelling case than others, but nevertheless the government has to live within limits,” Gov. Jerry Brown told CalMatters earlier this year.

“The great danger of pensions,” he continued, “is that risk comes later when the current lawmakers and advocates are no longer around, so the current leadership has to act as stewards for future beneficiaries.”

That is exactly the challenge before Gov. Gavin Newsom. The benefits are visible today. The risks arrive later.

Tim Hepburn is the mayor of La Verne and Scott Sedgley is the mayor of Napa.