California Pensions Forcing Cities Into Bankruptcy In California, more than 5,000 retired workers receive six-figure pensions. This year alone, the state expects to spend $3.4 billion compared with $160 million a decade ago. Hardly anyone thinks it's sustainable — and it could force many cities into bankruptcy.
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California Pensions Forcing Cities Into Bankruptcy

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California Pensions Forcing Cities Into Bankruptcy

California Pensions Forcing Cities Into Bankruptcy

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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.


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