SACRAMENTO – Most Californians are aware of the near-calamity at the tallest earthen dam in the nation, which sits east of the Butte County city of Oroville. More than 188,000 residents were evacuated in February after a large portion of the main spillway threatened to give way amid heavy rains. Talk of “Oroville” often centers on an infrastructure crisis and even global warming, as officials discuss ways to protect that city – and others – from catastrophe.
But a major dam’s eroded spillway isn’t the only thing threatening to collapse around the 19,000-population city. During a public hearing at a California Public Employees’ Retirement System (CalPERS) committee meeting this month, Oroville Finance Director Ruth Wright warned about the city’s rapidly collapsing financial situation.
Thanks in large part to growing pension costs, Wright said, “We’ve been saying the ‘bankruptcy’ word, which is not very popular.”
Wright was at the Sacramento meeting with several other city officials from across the state to support a senator’s request that CalPERS provide additional actuarial data regarding pension costs. (See her comments here at about 30:00.) Sen. John Moorlach, R-Orange County, wanted to know what the savings would be if pensioners had cost-of-living adjustments temporarily capped and if some employees were moved to a less-generous pension tier.
The impetus: Cities of all sizes and financial conditions are facing rapidly growing pension costs. CalPERS continues to increase the rates that cities have to pay into the pension fund, which is leading to cuts in services and layoffs of city employees.
“In the last two years, we’ve reduced our workforce by one-third,” Wright said. “This is how we balanced our budget, it’s how we’re currently operating, and it’s not operating well, let me tell you.” She said the city just negotiated a 10-percent salary reduction in the city’s police officers’ bargaining unit, “which is very, very hard, very sad.”
“Our future projections show that our rates are going to double in seven years and we don’t know how we’re going to face that,” Wright added. “In three to four years, our cash flow is going to be gone. We don’t even know how we’re going to operate past four years.”
Other California cities have gone bankrupt in recent years, including San Bernardino, Stockton and Vallejo. Some others have threatened the “b” word, but have avoided actual bankruptcy. Cities aren’t totally the victims here. Many of them dramatically expanded pension benefits, without accounting for what it would mean. But at least they now are sounding the alarm, as pension costs consume larger portions of their budgets.
Until the state Legislature addresses the expanding pension debt, more cities are going to face the dismal situation that Oroville’s finance director described at the hearing. More cities are not just going to be saying – but declaring – the “b” word.
Steven Greenhut is Western region director for the R Street Institute. Write to him at firstname.lastname@example.org.