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Harlan: City can take lead on pension reform

March 02, 2013|By Jeffrey Harlan

Pension reform is not exactly a hot topic at my dinner table.

In fact, I can assure you that the words have never been mentioned at any family meal. Tuesday evening's Cost Mesa City Council study session about the city's unfunded public pension liabilities revealed that it's not an easy subject to swallow, let alone fully digest.

Hired by the city to shed some light on what we're really facing, Stanford economics professor and former state legislator Joe Nation painted a bleak picture for the four council members and dozen or so community members in attendance.

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In Nation's view, the California Public Employees Retirement System, the state pension fund in which our city employees participate, is a flawed system that pushes costs far into the future and unreasonably relies on robust returns on its investments.

Nation also takes issue with the defined-benefit program's rules, which he argues would not pass muster in the private sector.

Presently, Costa Mesa is on the hook to pay $198.4 million in employee pensions and $35.5 million in retiree health-care liabilities. With 65% funding in place for pensions and nothing accumulated to cover the healthcare liability, Costa Mesa is poorly positioned.

While he offered comparisons with neighboring cities, Nation concluded that regardless of our relative position, we are all in pretty bad shape.

The reasons for these circumstances are numerous and complicated. There's no point trying to assign blame to any one party; all share some culpability in contributing to the situation.

Past councils approved enhanced benefit packages when the pensions were over-funded, employees successfully negotiated for additional benefits, CalPERS relied on aggressive discount rates for its investments, and a perfect storm on Wall Street almost crippled the national economy.

After listening to Nation's two-hour presentation I realized the gravity of the situation is daunting. His most insightful comment, near the end of the presentation, identified what's really at stake here.

"If you don't deal with this," he soberly warned, "you won't have anything that you care about."

Public safety, infrastructure, recreation facilities and programs and other essential city services and assets will be in jeopardy.

According to Nation, the way for any city to move forward is through benefit reductions, greater cost sharing and new revenues (e.g., taxes).

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