Basic City Services Versus Pensions – L.A. Has A Choice To Make
October 12, 2010
by Webmaster
Basic City Services Versus Pensions – L.A. Has A Choice To Make
The fundamental question facing Los Angeles City Hall today is whether L.A.'s residents should continue current funding for city employee pension and health care costs at the expense of basic city services. Last Friday, members of the City Council began to answer that question. While Friday's motion is a beginning, the Council has much larger reforms to consider if they are to address the primary cause for the budget deficit, which is the cost of pensions and health care for retirees that is growing between $200 and $300 million per year. The Chamber was encouraged that the City Council discussed additional reforms at its meeting today. The reality is that every additional dollar the City lays out for pensions and retiree health care means a dollar less for libraries, parks, police, fire and other basic city services.
Last Friday's motion by seven members of the Los Angeles City Council led by Council President Eric Garcetti directs the City Administrative Officer and the City Attorney to draft an ordinance that includes the following reforms:
• Raise the retirement age to at least 60
• Set final compensation on a three-year average
• Prohibit double dipping
• Lower the Consumer Price Index cap to two percent for the annual cost of living increase for retirees
• Require a minimum of two percent of salary contribution toward retiree health insurance
While these reforms are a step in the right direction, they will not have a noticeable impact on the $360 million dollar budget deficit projected for 2011 because they will only apply to new hires. To realize immediate savings, additional reforms need to be implemented, like having current employees contribute to their health care premiums and increasing the co-pay for office visits, which is $10 and has not been increased in more than 10 years.
Long term, meaningful pension reform would include switching from a defined benefit to a defined contribution plan for new employees and requiring a substantial employee contribution for post-retiree health insurance. If a defined benefit plan is continued, essential reforms include raising the retirement age to 65 or higher; reducing the current 2.16 percent retirement benefit per year of employment; capping the total annual benefits at 70-80 percent of final salary averaged over several years; and increasing the employee contribution to the pension plan while they are working.
To assure that the pension and health care reforms being proposed will result in the long-term savings that the City needs, the Mayor and City Council should insist upon an actuarial projection by an outside firm, which was included in the Council's discussion today.
The City Council was right to begin this conversation on pension reform. But their good intentions will not forestall future budget cuts unless they reach a point that is actuarily sound. Businesses and residents need to support the Mayor and City Council in making these tough decisions. They won't get any easier next year.
And that's The Business Perspective.
Comments
While written with great nerve and fabulously stated, you are only EVER SO CLOSE to the real problem. In my common sense opinion, the real problem is a systemic one. These decisions rest with public officials who themselves stand only to lose from any such decision they might make in our interest (either by pension reduction or risk of constituency support)...it is like trusting the living condition decisions to the inmates?
There is an inherent conflict of interest! That is the real problem. Take this out of their hands and the decisions would come easily. Or, at least, given the current circumstances, much easier than waiting for them. This plain and simple is a conflict of interest...next question?
Thanks again for your nerve to get us this close!!!
As a community based non-profit based in the City of Los Angeles, we operate a variety of contract that do not increase, yet our operating costs such as health care increase annually. While we cover 30% of an employee and dependents, we strongly advocate that City Employees be required to contribute a minimum of 10-20% of their health care premium and have $20 co-pays.
City employees are afforded the opportunity to have an HMO or PPO, so for those who do not want to pay much they can select coverage by an HMO. The difference in cost for covering a HMO family of 3 and a PPO family of three is over $1000 per month - $12,000 annually!
Yes, City employees should have to contribute more. They should also be required to contribute at least 5% toward their pensions.
With baby boomers retiring in record numbers over the next 5 years, they do bare some responsibility for ensuring that their pensions will be funded with their contributions and not based on the next generation of employees.
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