California's Brown Says Cities on Their Own as Pension Tab Rises

(Bloomberg) -- As California’s cities flounder under the rising cost of public pensions, they shouldn’t expect the state to extend a hand.

While Governor Jerry Brown noted in his revised budget Friday that local governments face "even greater pressures" than the state in dealing with the expense, he said it’s not up to the state to help.

"A lot of cities signed up for pensions they can’t afford," the term-limited governor said during a budget briefing in Sacramento. "I don’t think the state is in a position, as far as I can see, to step in the shoes of mayors and supervisors. They’re going to have to handle that themselves."

Brown’s position underscores the challenges facing local governments, whose resources are more limited than that of states in addressing the rising costs of keeping promises to police officers, teachers and other civil servants. In the Golden State, some cities are seeing their payments to the California Public Employees’ Retirement System rise by double digits in just a few years. Investment losses, contributions failing to keep pace with the cost of benefits, and changes in assumptions such as mortality rates have left many public pensions across the country with less than they need to cover obligations.

Brown noted that the state has acted: he and legislators in 2012 pushed through a pension overhaul that reduced benefit formulas for new hires. The impact becomes more significant each year as those workers replace those employees at higher benefit tiers, he said.

Cities looking for more relief may find it in the courts, Brown suggested. The governor in January predicted that legal rulings in pending cases may make it easier to cut pension benefits for existing workers.

"The pension story is not over yet," Brown said. "There will be more developments over the next few years."

To contact the reporter on this story: Romy Varghese in San Francisco at rvarghese8@bloomberg.net.

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, Michael B. Marois, William Selway

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