Rising Pension Costs Drive Proposed Tax Hikes Across California

Over 100 local governments will ask voters to increase taxes on Tuesday, which is nearly twice the record set in November of 2016. And while most elected officials are keen to cite needs such a public safety or other popular community services, skeptics posit that rising employee pension costs account for the bulk of these requests.

“The cause of this point-blank is CalPERS and our pension fund,” Lodi Councilwoman JoAnne Mounce said of a half-cent sales tax on the Nov. 6 ballot (Lodi News-Sentinel). Similarly, CalWatchdog writes that rising pension costs in Santa Ana have driven that city to the breaking point — even if city leaders don’t want to say so.

In Santa Ana, where voters are being asked to raise sales taxes by 1.5 percentage points on Nov. 6, the campaign for the tax hike rarely mentions pension costs.

But once again, a city bureaucrat framed the tax hike in more candid fashion.

“We’re not immune to the labor cost increases that are occurring throughout the state of California and throughout the country. We need to be able to provide additional services to the community. The question before the voters is what level of services do they want from their government?” Jorge Garcia, a top aide in the Santa Ana city manager’s office, told Bond Buyer.

Santa Ana’s pension bill is expected to go from $45.1 million in 2017-2018 to $81.2 million by 2022-2023 – an 80 percent increase.

The more bullish voices on California’s pension situation point out that CalPERS has been benefitting from better investment returns. As of July, the pension fund still had only 71% of the funds it needs to cover long-term obligations, however.

“That’s far below the 80 percent funding level that is considered the absolute minimum for a healthy pension system,” CalWatchdog says.

Local governments have been sounding the alarm about a coming pension crisis for years. In January, the League of California Cities warned that the situation was becoming unsustainable, with pension costs expected to consume 15.8% of local budgets by 2024-25.