A city's secret credit card

By: North County Times - Editorial | Thursday, April 7, 2005 10:39 PM PDT ∞

Our View: Oceanside decided Wednesday night to borrow up to $49 million, or more than half its $89 million annual budget, in yet another dramatic demonstration of how giveaways to local government workers will haunt North County for decades.

What most taxpayers don't realize is that Wednesday's borrowing decision was really a "re-fi." Like taking a second mortgage to pay off an expensive credit card, Oceanside did the smart thing and opted for lower interest rates, agreeing to sell bonds to cover a yawning pension obligation.

But how did this credit card get run up? That's the important part of this story. Like cities all over North County and the rest of California, the Oceanside City Council engaged in a quiet borrowing spree a few years ago in order to shower a 50 percent boost in retirement benefits upon police and firefighters.

In the case of Oceanside's public safety employees, the big raise came in June 2001. For a police officer who retired at age 50 making $70,000, the new deal meant that he would draw up to $63,000 a year for the rest of his life ---- a paycheck that rises with inflation. The benefit dwarfs those found in private industry.

On that day in June that cops and firefighters got their 50 percent raise, it was as if the city had handed each of them at least $200,000 in cash.

Trouble was, a raise of such magnitude pushed the city instantly into debt, creating an unfunded retirement obligation of $15 million.

And yet, a second iceberg was drifting toward Oceanside.

California's governments depend heavily on investment returns to boost their reserves to pay retirees. But Oceanside's lavish gift came a year after stock markets began to melt down. Four years later, the city's liability has grown to $36 million. In addition, pension payments for police and firefighters have surged from 5 percent to 35 percent of total payroll.

To put that into perspective, consider that just the interest on Oceanside's new debt could hire and equip 20 police officers.

What's more, all this borrowing, this decision to put a pay raise on a credit card, flew through the City Council without a vote of the people. They exploited a loophole in California's constitution that ordinarily requires permission from voters ---- in an election ---- whenever a government contemplates major borrowing. It's the reason we get to vote on bonds to build schools, hospitals or police stations.

It's important to note that every North County city in recent years sneaked through such highly leveraged pay raises, usually on 5-0 votes by Republican city councils. Rising pension obligations are a key reason why in many communities the potholes are multiplying and the time it takes a firefighter to arrive is growing.

Yet this story gets worse. Now our cities are well into round two of the big pension giveaway, handing 35 percent retirement hikes to general government workers, those folks such as engineers, clerks and maintenance workers who are not police or firefighters. In each instance, city managers say they must "stay competitive" with some neighboring city that had already given the raise.

In this respect, Oceanside has a chance to become a regional innovator. Its general city workers, whose contract expires in June, are demanding a 20 percent jump in pensions. The raise would immediately plunge Oceanside $26.6 million further into the hole.

There is another way. Cities can immediately move to safe, predictable 401(k)-style retirement plans for new employees. And they can begin giving honest raises to existing government workers instead of borrowing to fund lavish pension promises.