Why Proper Pension Accounting Matters, Stockton Version

For the better part of two years, Eileen has tirelessly worked to help municipalities grapple with the true costs of their pension systems. As I have argued before, Eileen’s work should be seen as pro-worker since it stresses the need for honest accounting and since it relies on the assumption that when we cost out pension plans, we should plan to live up to our promises:

So, what does it mean when people argue for a high discount rate in valuing pension systems? It means that they don’t think it is very likely that we will actually honor our promises to public employees. Thus, they believe we should discount those costs accordingly. They won’t say this, but this is exactly what such an assumption means. Conversely, people like Eileen who feel it is more prudent to use a low discount rate are saying that we should count on actually having to pay these pensions; that we should plan to honor our commitments.

Of course, in many circles, she and others who think it prudent to use a low discount rate are often characterized as being anti-public sector worker.

This week, Stockton, CA, became the largest US city in history to declare bankruptcy. In a recent interview with NPR’s Tess Vigeland, Stockton Vice-mayor Kathy Miller talked about the causes and consequence of the bankruptcy. In so doing, she lent support to Eileen’s work (emphasis added):

I think the most important thing is for the people here, this pendency plan reinforces our commitment to not reducing services to the public any further. For the last three-and-a-half years it’s the residents and our current employees that have borne the brunt of our cuts. Our employees, their compensation has been reduced anywhere from between 9-22 percent. Our workforce is down — 23 percent of our police officers, 30 percent of our firefighters and 43 percent of our other non-safety public employees. That translates to a direct reduction in services that the people living here have already experienced. These people have already given. It’s my belief that if these very generous pensions and health care retiree benefits had been fully costed out at the time they were granted, it would have been immediately apparent that they were not affordable.