ROBERT SIEGEL, host:

Lawmakers in California have been feverishly trying to come up with a resolution to a huge budget shortfall. And among the massive costs weighing down the budget are pensions for retired government employees. California has promised those retirees billions of dollars in pensions, but it can't pay.

In the final story of our series California in Crisis, Rob Schmitz of member station KQED reports.

ROB SCHMITZ: It was the best of times, and hardly anyone seemed to foresee the worst of times.

The year was 1999. With the state's economy riding high, California shared the wealth with its public retirees. It passed a law lowering the retirement age, making it possible for those with more than 30 years of service to retire with annual pensions approaching their top salary year.

A decade later, with the state's economy in shambles, these very pensions are in the crosshairs of many concerned Californians.

Mr. KEITH RICHMAN (President, California Foundation for Fiscal Responsibility): We have the most extravagant benefits in the nation.

SCHMITZ: Keith Richman is a former Republican state assemblyman who now runs an advocacy group called the California Foundation for Fiscal Responsibility.

At his office in Burbank, he navigates through his group's Web site, where he's posted a list of retired public employees in California who receive six-figure pensions. Number one is a retired city manager near L.A., who collects half a million dollars a year.

Mr. RICHMAN: The next people on the list: Joaquin Fuster goes down to $296,000 a year, and then James Stahl, who was with the Los Angeles County Sanitation District, receiving $265,000.

SCHMITZ: There are more than 5,000 Californians on this list. These six-figure pensions make up only one percent of retired public workers, but many others are rewarded generously. Take police and firefighters, for example. If they retire, say, after 30 years of service, they make 90 percent of their top salary each year, guaranteed, until they die.

Still, most retirees here are more like 89-year-old Max Turchen. He eats lunch at his neighborhood deli in Los Angeles. Turchen worked for the state as a welfare agent for 28 years. His pension is around $36,000 a year, not much but more than the state can afford. Ten years ago, California spent $160 million on its retirees. This fiscal year, it expects to spend 3.4 billion. Hardly anybody thinks this is sustainable, including Turchen.

Mr. MAX TURCHEN: I can't argue too much about it, because it's true. Things are costing more, and the cost has to be borne by those who receive the benefits, too.

SCHMITZ: The agency that manages California's pension system is called CalPERS. It is the largest pension fund in the country. Its investment portfolio is so immense that changes to it cause ripple effect throughout the stock market. Just a couple of years ago, CalPERS' asset value was worth a quarter of a trillion dollars. It lost a third of that in this recession.

Now, for the hundreds of cities, counties, and school districts that use CalPERS to manage their pension funds, this loss means they'll have to dip further into their own budgets to pay the promised pensions.

Pat Macht is spokeswoman for CalPERS.

Ms. PAT MACHT (Spokeswoman, CalPERS): It is a difficult proposition for them to come up with money when the markets go down, not to mention when we have the most historic downturn since the Great Depression.

SCHMITZ: Already, one California city has declared bankruptcy due in large part to its pension payouts. Others are on the brink, forced to make painful cuts. In Long Beach, pension obligations make up 10 percent of the city's budget. Lori Ann Farrell is the city's chief financial officer.

Ms. LORI ANN FARRELL (Chief Executive Officer, Long Beach, California): So I'm having a problem paying for all the employees we have, right here, right now. I really don't know how we'll pay for these pension costs.

SCHMITZ: Keith Richman of the California Foundation for Fiscal Responsibility says more city bankruptcies are inevitable.

Mr. RICHMAN: And those cities and counties are going to die from a thousand cuts in services.

SCHMITZ: Numerous attempts in Sacramento to cut back pension obligations over the years have failed. So Keith Richman is preparing a ballot initiative that would raise the retirement age and lower pensions for all future public employees in the state, a California answer to a California problem.

For NPR News, I'm Rob Schmitz in Los Angeles.

MADELEINE BRAND, host:

We'll meet the ultimate booster for high school girls' basketball. That story and your letters coming up on ALL THINGS CONSIDERED.

Copyright © 2009 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR’s programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

NPR thanks our sponsors

Become an NPR sponsor

Support comes from