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Bankrupt California cities slash public services to fund six-figure pensions

Published time: August 04, 2012 18:56
Edited time: August 04, 2012 22:56
A local newspaper headline announces bankruptcy in Stockton, California.(REUTERS / Kevin Bartram)

A local newspaper headline announces bankruptcy in Stockton, California.(REUTERS / Kevin Bartram)

As some California cities face bankruptcy, public services are being slashed so unusually high pensions can stay on the books. Stockton’s former police chief rakes in a pension of more than $200,000 a year, while also working another job.

­Former Stockton Police Chief Tom Morris retired with a $204,000 pension after just eight months on the job. While his California city became the largest in the US to file for bankruptcy, he moved to another city and makes an additional $76,066 salary at a new job.

The former police chief retired at age 52, and was among four of the city’s chiefs who held the job for less than three years, while retiring with an average of 92 per cent of their final salaries.

But Morris’ unusually high pension is not an isolated incident. City councils across California have allowed public safety employees to retire after working for 30 years and collect 90 per cent of their top salaries. But while raking in a sizable pension, they often take jobs elsewhere, while still in their early 50’s.

Two former police chiefs in San Bernardino receive similarly high pensions. Keith Kilmer receives $216,581 annually, while working another job. His predecessor, Michael Billdt, who has no college degree and was accused of trying to bribe an officer to withdraw a union grievance in exchange for a dropped investigation, receives $205,014.

“We have some safety retirees that are actually earning more in retirement than they earned when they were working, because they were able to manipulate the system enough in that last year that they could crank that last year’s income and then get 3 per cent times their 25 to 30 years,” said Kathy Miller, the city’s vice mayor, in an interview with Bloomberg News.

And these pensions are significantly higher than normal – an average annual payout from the California Public Employees’ Retirement System is $36,780.

While Stockton decided on Morris’ exceedingly high pension before going bankrupt, at a time when its finances seemed promising, it is now struggling to confront rising pension costs while also dealing with increasing unemployment and declining property and sales tax revenue.

While local California governments continue to pay six-figure lifetime benefits for some retirees, they are slashing local police and fire services to make up for the costs. They are also cutting library hours and other public services to keep up with the payments.

“We didn’t have very many people looking out for the taxpayers when these deals were negotiated,” San Jose Mayor Chuck Reed told Bloomberg News. In the past 10 years, his city increased retirement spending from $73 million to $245 million.

Stockton, which filed for bankruptcy protection on June 28, continues to fund expensive employee pensions that it can’t afford.

In 2007, the city borrowed $125 million with a bond issue in order to pay for enhanced pension benefits. But when the market crashed, Stockton's assets lost one third of their value, and the town still owes $124 million on the bonds.

Meanwhile, San Bernardino, which filed for bankruptcy on August 1, had already lowered its retirement age for public safety workers from 55 to 50. In the past year, the city was forced to use 13 per cent of its budget to pay for its pensions, an increase from 9 per cent in 2007.

Lowering the retirement age took a strike at San Bernadino's budget that may have contributed to its bankruptcy filing.

But after they are made, pensions are usually set in stone, which causes a dilemma when cities like Stockton, San Bernardino and Mammoth Lakes go bankrupt.

“You don’t want [employees] in a vulnerable position where [the pensions] easily could be lost, but then you also have to make sure that you have a fair system that can make adjustments if a city’s finances are tanking,” said State Controller John Chiang.

But while Stockton’s former police chief is living the life with a quarter million dollars coming in a year, the broke city has been left in the dust as it struggles to continue funding the young retirees' income.