In recent
years, it seems that every ballot measure to bump municipal taxes in the North
Bay has elicited comments like “I’m willing to pay more for better city
services, but will vote against this tax increase for fear that my money will instead
be spent on pensions.”
I understand
the sentiment, but it misses the point.
Pension funding is already a legal commitment on California cities, a burgeoning
financial obligation that hangs like a sword over the desk of every city
manager and financial officer in the Golden State. Whether or not a tax measure passes will have
no impact on the financial hole already dug.
The only question is whether we choose to backfill some of the funds that
were sucked toward pension funding by the recession.
Regular
readers will likely recall my take on the recent history of municipal finance,
including pensions. I argue that the costs
of suburbia were becoming an uncomfortable burden as early as the 1970s. But rather than looking to the root causes, rabble-rousers
such as Howard Jarvis grabbed the public spotlight by claiming
that government inefficiency was the real problem and that taxes could be
trimmed without harm. The result was
Proposition 13.
By the
1990s, the financial crunch had continued to worsen and, in the absence of enough
folks pointing a finger at the flawed land-use model, local governments were becoming
increasingly clever in looking for ways to offload near-term financial obligations.
Although
somewhat later than the 1990s, a good example is former Governor Schwarzenegger
constructing a deal to sell state office buildings for cash, with extended
leases then signed for continued state use.
The arrangement would have effectively converted current assets into
cash to pay current bills and debts to be paid by later Californians. Upon entering office, Governor Brown
promptly and justifiably quashed the plan.
But that
quashing was the exception as various other schemes to push costs onto future
generations moved ahead. Among those
were deferred maintenance, letting future folks pay the maintenance bills
incurred by current use, allowing new development
to secure the impact fees without considering the long-term financial
sustainability, and bonding for short-term needs.
To be clear,
if the life of the improvement is the same as the life of the bonds, bonding is
a fine approach for ensuring that the people who benefit from an improvement
are the same as those who pay for it, e.g., 30-year bonds to pay for a water
treatment plant with a design life of 30 years.
But issuing long-term bonds to pay for improvements that will provide
all of their benefits in the early years is a scam played by the present on the
future.
Another mechanism
to give the benefits to the present while offloading costs to the future was pensions. Faced with a lack of funds to give pay raises,
and threatened with labor stoppages as a result, city governments in the 1990s
gave expanded pension benefits in place of salary bumps. It’s not that employees were eager for larger
pensions. It’s likely that most would
have preferred bigger paychecks. But
pension benefits were offered instead and the employees were convinced to
settle for those.
Of course,
the pension payments made by cities were actuarially computed to fund the
future pension benefits. But those
computations were subject to being upset by economic turmoil or longer
lifespans, both of which have come to pass.
Thus, our cities now find themselves strapped into paying the benefits
for municipal employee hours that were worked in 1990s.
I know that
this explanation is somewhat ingenuous.
Not all of the municipal malaise that led to the pension debacle can be
laid at feet of our land-use pattern.
Other factors such as the growing income divide, which leaves the many residents
strapped for income and eager to believe arguments that allow them to keep
their tax bills manageable, were also involved.
But the
land-use pattern played a role. Compared
to other countries, the U.S. has an unusually large infrastructure value per
capita combined with lower tax rates, so a cash crunch over infrastructure maintenance
was predictable, as were creative and sometime dubious ways to manage that
burden.
I know some who
argue that we shouldn’t honor the pension obligation. But there are two big arguments against that
path. The first is that the pension
obligations are legal. Perhaps we were
swindled by our forebears, but they dotted their i’s and crossed their t’s. Even more importantly, these are our friends
and neighbors whom some suggest we shortchange on their retirement. I find that suggestion unacceptable.
While the
imposition of pension costs on us was legal, the morality was more dubious, but
there’s not much we can do about it. As
many of those responsible for the deed have now left the stage, our only
options for expressing our disappointment are to visit the cemetery to spit on
gravestones or to stop by a senior living center to snatch away walkers,
neither of which seems suitable.
So, even as
we struggle to pay the bills left to us by others, at least we enjoy the
dubious pleasure of knowing we occupy the moral high ground, right?
Well, maybe
not. After all, is our generation doing
much to address the land-use model that is the cause of much of our financial
distress? Not really.
It’s true
that urbanism is gaining ground, with walkable communities and transit-oriented
development a growing element of the land plans of many communities. But much of that change is the result of
market demand or directives from higher levels of government. Except for a few lonely voices, there are few
calls in city halls to change the land use model that has led us to our current
state.
So, even as
we decry the debts left to us by the past, we’re busy leaving debts to the
future. We’re continuing to build
infrastructure for which the incremental tax revenues are insufficient to
maintain. We’re doing little to retrofit
past land uses to make them more financially sustainable. And on a national level, there are many who follow
policies that would widen the income gap.
About the
only change we’ve made is giving reduced pensions to new public employees,
which may be justifiable, but is attacking the wrong end of the problem.
We’ve done
nothing to justify acting morally offended.
Ironic,
isn’t it?
P.S. In case
any are wondering about my credentials to argue these points, or whether I’m a
late convert to the cause who was a long-time part of the problem, my history
is moderately good.
Even as a
brand new homeowner in 1978, still trying to figure out how to cover the bills,
I argued strenuously against Proposition 13.
I didn’t have the grasp of the facts that I do now, but something about
the facile arguments of Howard Jarvis struck me as false. I was sure that city halls weren’t perfect,
but neither did I believe that they were an inept as Jarvis argued.
More
recently, I’ve often expressed concern with the fixed pension model. Watching old-line U.S. industrial powers
succumb to pension plans, I worried about the impacts it might have elsewhere.
So my
arguments above aren’t the result of a late conversion, but of decades of
questioning the conventional wisdom.
Having
placed myself securely on my philosophical soapbox, I’ll remain there for my
next post. I’ll opine on the role of
neighborhood input into land-use actions.
As always,
your questions or comments will be appreciated.
Please comment below or email me.
And thanks for reading. - Dave Alden (davealden53@comcast.net)
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