PD Editorial: Petaluma may face a tough sell on pension tax

Petaluma was among the first cities in California to allow police officers and firefighters to retire at age 50 with pensions up to 90 percent of their salaries.

That was in 2000, one year after the state began sweetening retirement benefits for CHP officers, prison guards and other public safety employees.

Proponents in Sacramento said the enhanced benefits wouldn’t cost taxpayers a dime. They would pay for themselves through growing returns on investments by public employee pension funds.

We know how that turned out.

Enhanced retirement benefits soon spread to nearly every state and local public safety agency, coupled with smaller but still substantial increases for non-safety employees. But investment income is running billions of dollars short of promised benefits, and state and local governments, including Petaluma, are struggling to maintain public services while making mandatory pension payments that are steadily increasing - even after state lawmakers imposed a less generous retirement formula on public employees hired after 2012.

Petaluma now finds itself at the front end of another potential trend.

Faced with projected budget deficits attributed to rising payments to the California Public Employees Retirement System, officials in Sonoma County’s second-largest city are considering two tax measures - a hotel tax and a sales tax - to cover its pension obligations. Both would require voter approval.

“Petaluma will need to find a way through this crisis,” City Manager John Brown said in his State of the City address earlier this month.

Over the past 10 years, he said, Petaluma already has reduced its staff by 12 percent, cut overall spending by $4.2 million and exhausted its tools for reducing retirement costs - asking employees to pay a larger share and cutting benefits for new employees.

“The city needs a new revenue source,” Brown said.

Petaluma isn’t alone.

With cities’ pension costs projected to double as a percentage of general fund spending over the next seven years, a new study from the League of California Cities says that retirement expenses are approaching “unsustainable levels.”

The choice awaiting voters in Petaluma and several other cities now considering pension taxes won’t be pleasant. Payments to CalPERS are mandatory, and leaving CalPERS is prohibitively expensive. Even more cuts to public services is the obvious (and unpalatable) alternative to a pension tax. But bigger tax bills earmarked for pension costs probably won’t result in enhanced services - the most common rationale for supporting a tax hike.

Mayor David Glass, who opposed a sales tax measure that failed in 2014, says he’s on board now because the city plans to tell voters it needs the money to fulfill its pension commitments.

“The last time we weren’t telling people where the money was going to go,” Glass told the Petaluma Argus-Courier. “Now we’re being honest with the public. This is the biggest issue facing this town.”

In 2000, when Petaluma boosted retirement benefits, city officials were forthright about the high cost but said it was necessary to attract and retain employees. Those high costs are coming home to roost. But a pension tax is going to be a tough sell.