Contra Costa Assembly Member Undermines State Pensions
Assembly Member Anamarie Ávila Farías, who represents a large portion of Contra Costa County, is the co-author of a fiscally irresponsible pension measure, AB 1383, which could become law later this year. I recently wrote about the bill for California Policy Center and am sharing it with you below. If you are in Assembly District 15 and agree that this is a serious concern, I hope you will contact her office.
Is California Doomed to Repeat Pension History?
California’s state and local governments are struggling to find the cash needed to pay government employees the retirement benefits they promised. As the League of California Cities observed, pension costs for many of their members have been rising to “unsustainable levels”. Now, remarkably, the state Assembly is ready to make that problem far worse – by promising even more benefits without any plan to fund them.
Legislators in both parties are backing Assembly Bill 1383, a bill that creates new, more generous pension formulas for public safety employees and allows government employers to negotiate away the 50% employee contribution requirement at the bargaining table. It gets worse: the bill would also allow more government employees to retire earlier – at age 55 – while receiving 90% of their final average salary (i.e., their average salary for the 36 months during which they received their highest base pay). This would be on top of the retiree health benefits that safety employees already enjoy.
What will happen next is unintended but absolutely predictable. To cover the increase in benefits, state and local agencies will find themselves paying more into the California Public Employee Retirement System (CalPERS). That will leave less cash for government services. Pressed to manage their budgets, government officials will propose cutting costs – including jobs and services. That will trigger almost immediate protests by government union leaders – followed by walkouts, strikes, and temporary government shutdowns.
That’s the situation in Los Angeles where Mayor Karen Bass is working to plug a $1 billion deficit by cutting some 1,600 jobs. In Fiscal Year 2023-24 alone, the City was obliged to make over $1.6 billion of contributions to its three pension funds.
“I’m going to push back and fight against every single one of these layoffs,” said David Green, president of SEIU 721, the union that represents tree trimmers, trash truck drivers and others.
There was a time when CalPERS was fully funded. In the late 1990s, after years of strong stock market performance, the retirement system achieved a funded ratio of 120.5% – meaning that it had $120,500,000 of accumulated assets for each $100,000,000 it needed to pay future benefits.
The money quickly burned a hole in the pockets of officials eager to please leaders of the state’s politically powerful government unions. CalPERS’ management reacted by proposing that the state legislature increase pension benefits. They expected the increased costs would be covered by “excess assets” in their funds and very modest increases in future state pension contributions. The legislature enacted the CalPERS proposal by passing Senate Bill 400 in 1999.
Then reality set in. The stock market fell in 2001 and collapsed in 2008. By 2013, faced with the increased benefits costs of SB 400 and a decline in revenue, CalPERS’ funded ratio plummeted. By 2013, the ratio had fallen to just 75%. It has remained around that level ever since – despite strong stock market performance and sharply higher employer pension contributions.
The situation would be even worse today if not for former Governor Jerry Brown. In 2012, he shepherded a modest pension reform through the state legislature. The Public Employee Pension Reform Act (PEPRA) limited pension benefits for new hires and required that employees cover half of the “normal” cost of their pension benefits (normal cost excludes any pension contributions whose purpose is to reduce underfunding).
California political leaders already predict that Trump’s tariffs will play havoc with the stock market on which CalPERS relies for investment revenue. Even without AB 1383, public employee pension funds will become much more depleted.
AB 1383 has already passed out of its first Assembly committee unanimously. It enjoys vigorous support from unionized firefighters, who undoubtedly provide a valuable service at considerable risk, but many of whom already receive compensation packages of $600,000 or more for their efforts.
Before this bill rolls through the entire legislative process, much more analysis needs to be done of its potential impact on CalPERS and smaller pension systems. Just about everyone, including Gray Davis who signed SB 400 into law, now realizes that law was a mistake. Let’s not make the same error with AB 1383 and its potential successors.
Election Update
CoCoTax opposed Acalanes Union High School District Measure T, which would have increased high school parcel taxes in Lamorinda and parts of Walnut Creek from $301 to $431.
The measure required 66.67% of the vote to pass. As of Friday, 63.53% of votes counted by the Elections Division were in the affirmative. The measure is now 2700 votes short of passage and the County has only 115 unprocessed ballots. We are thus cautiously optimistic that the Measure will fail. Final results will be known next Friday.
Upcoming Events
May 23 - Contra Costa Water District, El Cerrito Library Parcel Tax, Changes to County Urban Limit Line - Register at https://cocotax.org/sys/website/system-pages/?pageId=1860388
June 27 - Oakland Mayoral Election Recall Leader Seneca Scott on Oakland’s Crisis and Its Implications for Other Cities and Counties
September 26 - Pacific Research Institute’s Steven Greenhut discusses his new book, The War on Suburbia.
Thanks for Reading
Marc Joffe, Contra Costa Taxpayers Asssociation