The city of Oakland, California has now made it official policy to live like there's no tomorrow. At least that's the only rationale sufficient to explain why the city of nearly 400,000 is dealing with one of the most insanely-constructed public pension systems in the nation by compounding its obligations.
Oakland, you see, erected a system in which benefits for public safety retirees and their widows were indexed to the pay scale of current employees (benificiaries could get up to a 2/3 match of present-day pay), meaning that pensioners would receive raises as time went by. Having failed to fund those extravagant benefits, however, the city is now taking on ever more debt rather than addressing the problem directly.
Oakland, you see, erected a system in which benefits for public safety retirees and their widows were indexed to the pay scale of current employees (benificiaries could get up to a 2/3 match of present-day pay), meaning that pensioners would receive raises as time went by. Having failed to fund those extravagant benefits, however, the city is now taking on ever more debt rather than addressing the problem directly.
Here's how the San Francisco Chronicle reports it:
In 2010, City Auditor Courtney Ruby found Oakland spent $250 million more on the pension than it would have if the city had simply paid into the pension - and that was just for one of its bond deals.
Last month, the majority of the Oakland City Council, at the urging of Mayor Jean Quan's administration, voted to borrow money once again to cover the pension bill - $210 million in new pension bonds that will cost another $105 million in interest over the next 14 years. But the loan will allow the city to avoid paying for the pension from its general fund for four years. If the city hadn't borrowed the money, it would have been forced to take $38.5 million from its roughly $400 million general fund to pay for the pension this year.
... The bond sale relieves fiscal pressure now, but [Oakland Councilwoman Libby] Schaaf said it creates pressure in the future. In the last three years of bond payments, starting in 2024, the city will have to pay $161 million in bond and interest payments on top of the $123 million it will owe for the pension itself.
"I'm terrified that the city of Oakland will someday need to declare bankruptcy," said Schaaf. "It creates a false sense of security that our finances are in order while our pension obligations mount and the debt balloon payment becomes due, starting in 2024."
The upshot: Oakland takes on $105 million in interest payments in order to avoid paying $38.5 million into the pension fund this year. If that math doesn't make sense to you ... then you're not qualified to be an elected official in California.
