Pension crisis hurts city budget

Petaluma’s budget is ailing, and there is no question as to the cause: Public employee pension obligations.

The city, along with many other jurisdictions across the state, is currently paying the price for decisions made nearly two decades ago, when the economy was booming and it was easy to offer municipal workers golden retirement packages. Those bills are now coming due, and with the state’s investment fund for retiree benefits not performing as expected, cities are having to contribute a larger share.

Cities’ pension costs are projected to double as a percentage of general fund spending over the next seven years, according to a study from the League of California Cities. Petaluma officials acknowledge that these obligations are crippling their budget and making it difficult to address other city priorities.

Over the past 10 years, Petaluma already has reduced its staff by 12 percent and cut overall spending by $4.2 million, all while exhausting its tools for reducing retirement costs by asking employees to pay a larger share and cutting benefits for new employees. It’s clear that the city needs a new revenue source, and officials are not hiding the fact that it’s because of the pension crisis.

City Manager John Brown said voters will likely see a proposed general sales tax increase on the November ballot. A half-cent increase could generate up to $6.5 million per year.

No one wants to vote for a tax increase to pay for public employee pensions. But the city must pay those obligations whether or not it has a new revenue source, and new revenue would allow the city to address its other pressing needs.

Think of pension obligations like your rent or mortgage. Every month, you have to pay your housing expense, and whatever you have leftover is your discretionary income. If you get a raise at work, you might have the money to fix your leaky roof or buy a better car. But if you don’t get a raise, you still have to pay your housing expense, and you won’t be able to make upgrades in other areas.

With new revenue, city officials have signaled they will invest in their public safety departments, which employ the men and women who kept Petaluma safe during last October’s wildfires. Police department staffing levels are still below pre-recession levels, and fire stations are in need of upgrades. Both departments need new equipment.

According to recent poll results, Petaluma residents’ biggest priority continues to be fixing the city’s crumbling streets. Fortunately, new sources of revenue could soon be on the way to help make that happen. Petaluma is expected to receive about $2 million per year from the new state gas tax increase, assuming state voters wisely reject an expected referendum on the tax later this year.

Voters are also expected to get the opportunity to extend the countywide Measure M quarter-cent sales tax that has been in effect since 2004 for use in widening Highway 101 and repairing roads. Because that measure would not increase the existing tax rate, it has a good chance of passage.

A citywide sales tax increase will likely face a more difficult course. Despite the fact that the city has already taken all the pension reform steps at its disposal, voters have strong feelings about skyrocketing public employee pension costs. Still their choice come November may be to either vote to increase the city’s sales tax rate or watch the quality and quantity of city services continue to decline.

It won’t be an easy choice.