Study Shows the Real Cost of Pension Crowd-Out

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Pension costs in California are ballooning so much that important community services are being crowded-out in their wake, according to a new study by Stanford University professor Joe Nation. The report, “Pension Math: Public Pension Spending and Service Crowd Out in California, 2003-2030,” details jurisdictional case study after case study of failing pension systems per county, city and school system and what it means for taxpayers.

In many cases, police, fire and other critical public safety services have been reduced to pay increasing pension costs. For example, in the City of Vallejo, as the pension share of the city’s operating expenditures increased from 3.1 percent in 2003-04 to 15.2 percent in 2017-18, the number of police fell from 221 in 2004 to 143 by 2014, and the number of fire personnel remains nearly 30 percent lower than in 2004.

Other services, such as public health, public assistance and transportation, are especially being hit, as well as libraries and recreational services. In the City of Stockton¸the pension share of operating expenditures increased from 3 percent in 2002-03 to 12 percent in 2017-18, and have displaced an estimated $31 million of other city expenses this year alone. The city’s higher pension contributions have led to reductions in three functional areas: public works, libraries, and parks and recreation. Furthermore, looking ahead, pension expenditures in 2029-30 appear likely to crowd out an additional $28 million in other city spending.

California school districts are not immune to escalating pension costs. The study examines the Los Angeles Unified School District, Mill Valley School District and Visalia Unified School District. In all three areas, operating expenses, salaries and staff have been reduced to pay pension costs. Further, in Mill Valley, educational services, supplies and books have been cut. 

U.S. public retirement programs are more than $5 trillion in debt, resulting in tremendous budget challenges for states and municipalities. As more and more public retirement plans face insolvency, policymakers tend to pull funds from important public services like education, public safety and transportation to pay down pension debt. This, coupled with reduced funding for community centers, libraries and parks, leads to a reduced quality of life for all taxpayers.

The Retirement Security Initiative believes that state and local governments have a responsibility to provide essential services that protect the safety, health, welfare and quality of life for all Americans. Sadly, as the Stanford study shows, these services will continue to be reduced as public pension debt increases. While it’s easy to kick the can down the road for another day, if policymakers don’t get control of the public pension crisis now there will not be funds for essential community service programs in the future.