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Holding the Bag-Pensions


           Our first two “Holding the Bag” articles put the spotlight on a common yet irresponsible financial management practice – making promises to public sector employees to pay for health care after retirement, without putting money aside to cover their cost. Accountants call that an “unfunded liability”.

            An unfunded liability is much different than a liability incurred to pay off a school construction bond. The school built with bond proceeds will be used for many years – as the bond is being paid off. People who pay off the bond receive benefit from the school. But unfunded liabilities to pay retired workers burden taxpayers who are no longer receiving (maybe never received) the services being paid for. Those ” future” taxpayers end up paying the costs for current employees and the cost of promises made to previous employees who are now retired. Locally unfunded liabilities are well over $100 million.

            We reported that La Mesa Spring Valley (LMSV) school district has an unfunded retiree health care liability of about $24 million, while Helix Water District’s (HWD) is about $25 million. La Mesa, to their credit, has no unfunded retiree health care liability. The second significant category of unfunded liability at the local level is pensions. The City of La Mesa has an unfunded pension liability of more than $34 million, while HWD’s is more than $17 million. The teachers pension system (STRS) does not report its’ unfunded liability by School District, so we do not know the amount for LMSV – but we do know that statewide the STRS unfunded liability is about $70 Billion (with a B).

            In a well run organization, when there is not enough money to provide all of the services that taxpayers would like to have, one of two things is done – either taxes are increased, or fewer services are provided. The choice is often a tough one. But it is one that must be made – that is unless we allow our elected representatives the all too easy out of creating an unfunded liability. That option of pleasing everyone (present) is just too tempting for most politicians to resist. So here we are!


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This entry was posted on September 2, 2013 by .
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