New taxes should include pension solution

Petaluma city officials are once again exploring the possibility of asking voters to tax themselves to provide additional revenue to fund vital city services. If this sounds like deja vu, it is because the city has attempted to ask voters to tax themselves twice in the past few years.

In 2014, voters rejected Measure Q, a general purpose sales tax that did not even have the backing of the full city council. Last year, another prospective tax measure didn’t even make it to the ballot. After spending thousands of dollars carefully studying a potential tax measure, officials backed off when polling showed a specific tax for street repairs would not get the required two-thirds vote.

In the meantime, and despite steady increases in retail sales tax revenues, Petaluma’s financial outlook has not gotten any rosier, primarily due to the rapidly accelerating increase in employee pension and retiree health care costs. The number of employees is not the problem. The city is operating with a 305-member staff as compared to the 370 positions that were filled pre-recession. Rather, the problem is uncontrolled pension costs.

The city’s share of contributions to the public employee retirement system is expected to increase by a whopping $1 million per year over the next decade, and with pension costs having already increased by 64 percent over the past five years, the outlook is grim.

Today, pension obligations account for about 20 percent of the city’s annual budget and are on pace to consume an even greater share in years to come. The main cause of the problem is that, beginning in 2000, state, county and city leaders promised government employees unrealistically high and overly generous retirement benefits that could not be paid without cutting deeply into vital public services. That bill is now coming due.

Compounding the problem is the California Employee Pension Retirement System (CALPERS), the agency managing retirement funds for Petaluma’s public employees. Saddled by years of imprudent investment decisions, and to prevent a fiscal collapse of the retirement system, CALPERS is demanding more money from cities.

Partly as a result, Petaluma’s city services are in decline. Parks and city facilities need renovation, and our crumbling streets are among the worse in the Bay Area.

While there is some movement at nearly every level of government to invest in road repairs, it will take a local revenue commitment to get the job done.

At the federal level, the Trump administration has promised a $1 trillion infrastructure spending package, which, if it doesn’t become one of the administration’s many failed promises, could translate to money for local streets.

At the state level, lawmakers have already taken action, approving a gas tax increase last month that is expected to raise more than $50 billion for roads in the next 10 years. Petaluma could see as much as $1.4 million per year in new funding for street repairs.

At the county level, transportation officials are considering renewing Measure M, the quarter-cent sales tax passed in 2004 that has been used to widen Highway 101 and fix streets. With the widening project through Sonoma County nearly complete, if approved by voters much of the renewed Measure M funding could be channeled to cities for street maintenance and repair.

But even with these new or prospective sources of revenue, Petaluma will still be well short of the estimated $179 million needed to bring pavement quality throughout the city to acceptable levels. A local sales tax dedicated to street repairs could get us there.

But passing a tax measure in Petaluma has proven difficult. The reason: voters are not eager to support raising the sales tax rate if they perceive a significant portion of the increased tax revenue is going to fund out-of-control employee pensions and pension debt, specifically pension costs that enable most of the city’s public safety employees to retire at age 50 with 90 percent of their final year’s salary. While everyone should appreciate and respect the hard work and inherent risks taken by public safety employees who provide great service to this community, the exceedingly generous retirement packages they receive are a wildly extravagant anachronism.

Although the city created a two-tier retirement system before the state required it, taxpayer advocacy groups say that current employees should be asked to increase their contributions to the retirement system.

The argument makes sense. If residents are going to be asked to tax themselves to help solve the city’s financial crisis, then employees should also be asked to make a contribution. New revenue is one way the city can balance its budget. Reducing pension costs is another way. A combination of the two would be ideal.