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California’s state and local government pension and health costs for retirees are a hot political issue that should be a concern for small businesses around the state. As public pensions continue to take more and more from government budgets, services will be cut. Small businesses will face the threat of losing services or facing higher taxes to pay for the pension and health care costs.
The evidence of difficult budget times is all around us. Los Angeles city retirement costs, which currently take up more than 10 percent of the budget, are projected to take one-third of the budget by 2015. A grand jury in San Diego said pensions could require half the general fund by 2025. A year ago, a grand jury in San Francisco reported that pension and health care costs would increase from $413 million in the fiscal year to nearly $1 billion in just five years and “threaten to move resources from other needs of the city.”
Clearly, to overcome these barriers and establish more cost-effective governments, a new paradigm must be created for government and its relationship with public sector employees.
Public workers should also be concerned about taming the pension issue because public jobs will be put at risk as one way to control costs. One national authority on investment of public funds predicted that state and local governments would have to reduce their work forces by 150,000 just to cover the cost of retirees.
Governor Jerry Brown has proposed a 12-point plan to control state pension costs. Initiatives might be the remedy for this problem if the legislature does not act.
Reforms dealing with pension and health care costs are well-known: Caps on employer contributions (perhaps to be put on par with employee contributions), increased employee contributions, 401(k) style pension plans for public sector workers and a myriad of other plans have been suggested. Those who enjoy the current system understandably resist change. However, as the vise continues to squeeze, change must come.