State Won’t Ride to the Rescue over Local Government Pension Problems

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

At his latest state budget press conference, Gov. Jerry Brown made it clear there will be no state cavalry riding to the rescue of local governments battling the pension monsters local officials created. Therefore, taxpayers will have to be on guard against a potential avalanche of tax measures that could appear to deal with the problem.

“A lot of cities signed up for pensions they can’t afford,” Brown told reporters and said the state wasn’t in position to help. The League of Cities acknowledged the growing pension problem releasing a study in February that declared the pension situation “unsustainable.”

The study reported that an average of 11% of city budgets go to pension costs today headed to close to 16% by 2024. Add healthcare costs to the mix and cities are already well beyond those percentages. Los Angeles currently sees 20% of its General Fund set aside for retirement benefits. The city of Richmond is looking at 41% of its general fund dedicated for employee retirement costs by 2021.

So if the state won’t help, what will cities do?

The state Supreme Court might grant local governments an escape hatch depending how it decides on the “California Rule” precedent that has prevented local governments from adjusting pension formulas for already hired employees.

Aside from that possibility, local governments and interests like public employee unions or organizations concerned with potential drop in discretionary spending if cities must pay more in retirement costs will undoubtedly look to the taxpayers for help through ballot initiatives.

Thanks to the Proposition 13 protections government officials can’t just add the costs on to the property tax. So expect to see a number of tax measures headed for local ballots.

Will those tax measures be labeled as revenue raisers to deal with pension problems? No way. Unless the law requires it.

The Tax Fairness, Transparency and Accountability Act of 2018 would require not only transparency for new taxes, but in addition, establish a two-thirds vote standard to pass all taxes. Local governments or tax increase initiative supporters would have to justify the need for new taxes to secure the necessary votes.

Over a million signatures were filed to qualify this constitutional amendment for the ballot so it is nearly certain to qualify for November voting.

Gov. Brown’s declaration at the budget press conference made it almost certain that local jurisdictions will be reaching out to taxpayers to help offset retirement costs and in turn that action makes it imperative to add the protection of the Tax Fairness measure to gain transparency and certainty in raising local taxes.

(Disclosure: The proposed ballot measure is intended to strengthen Proposition 218, the Right to Vote on Taxes Act, passed by voters in 1996. I was the proponent of Proposition 218 and have been called on to give advice in support of the Tax Fairness measure.)

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