CalPERS Contributions to Put More Squeeze on Local Funding For Roads

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CalPERS contribution rates will rise more than nine percent, a move that experts project will cost state and school districts more than half a billion dollars.

Last year, CalPERS (California Public Employees’ Retirement System) agreed to incrementally increase its rates, and earlier this week, the board’s administration committee recommended even higher rates for the upcoming year.

“As the fund matures, and the retired population grows, it’s important that the rates reflect the changing demographics of our members,” said committee chairman Richard Costigan in a prepared statement.

The Sacramento Bee reported earlier this week, “The state’s annual contribution would increase by $487 million, to $4.75 billion, an increase of about 11 percent. The contribution from school districts would increase approximately 9 percent, or $111 million, to a total of $1.34 billion a year. California teachers have their own pension fund, but school employees other than teachers get their retirement plans from CalPERS.”

Cities are not out of the woods either, as the CalPERS board will vote in the fall on higher rates for participating cities, counties and local government agencies. Those rates would take place in July 2016.

Analysts fear that rising pension costs are threatening municipal services in California, and, with rate hikes on the horizon, the problem is threatening to get worse in the short term.

Locally, the city has put on hiatus for now plans to introduce a parcel tax to deal with crumbling road infrastructure. In the short term, the city has pushed about $4 million annually into roads from the general fund. But it is increasingly apparent that, while Davis’ roadways are somewhat worse than state average, this is a statewide problem.

Back at the end of February, the Field Poll found that “California voters strongly believe that state and local governments should be spending more money to improve the conditions of its roadways. By a 71% to 14% margin voters want more not less funds to go to the maintenance of existing roads. Voters also favor more spending on new road construction, but by a narrower 48% to 35% margin.”

However, the poll found there was no public consensus for how to pay for this. “When asked whether they would support increasing the state gasoline tax by 10 cents per gallon to improve the condition of state roads, voters are evenly divided, with 49% in favor and 48% opposed.”

Part of the problem is that voters already view tax levies on gas as higher than in most other states, by a 76% margin.

Back in late March, the League of California Cities issued a release indicating it had engaged in conversations with state and federal lawmakers about the condition of California’s local streets and roadways.

The discussion, based on the most recent biennial Local Streets and Roads Needs Assessment, which was released last October, showed that the average rating in California was 66. Locally, however, Davis was at 62 and rural Yolo County was already in the red.

The survey uses a four-tiered Pavement Condition Index (PCI) scale from zero to 100 to assess the conditions of local roads within California’s 58 counties.

“At first glance, the fact that the on-average rating for California’s local system is 66, just four points under what the study deems as good condition, does not appear to be alarming,” the League stated. “The reality is that the local roads are on a precipice.”

“Why are local transportation experts so worried about an average pavement condition of 66?” they ask rhetorically. “This number is significant because the cost of repairing roads that slip any farther grows exponentially. The local system in 2008 ranked 68 and in the six years following the first assessment conditions slowly dropped two points. Transportation experts warn, however, that pavement condition deteriorates much more rapidly after this point in the life cycle of pavement condition.”

They continue, “This illustration shows very plainly the costs to maintain roads (per square yard) over the course of this life cycle. When conditions dip much farther under current conditions, the cost to repair and maintain these roads dramatically increases. For example, roads with a PCI ranking between 70 and 50 cost $15-$20 per square yard to maintain, but the amount doubles to $30-$40 for road conditions with PCIs in a range of 50-25.”

The League concludes, “The 2014 Local Streets and Roads Needs Assessment found that currently local agencies receive just half the revenue needed to maintain the local system. Investments must be made to the system that comprises more than 80 percent of California’s roadways because time is running out for the roads beneath our feet and wheels.”

Every time that CalPERS increases the rates, it takes half a million to a million out of the local funding that could go to pay for roads or other infrastructure.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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29 thoughts on “CalPERS Contributions to Put More Squeeze on Local Funding For Roads”

  1. zaqzaq

    CalPERS is only being responsible by raising the contributions to the pension fund.  It has an obligation to insure that the pension fund has the ability to pay our the pensions that were promised to the government employees it covers.  If local governments want to reduce these payments the need to negotiate with their employees.  One way is to change the pensions for new employees that reduce costs.  Our elected officials at many levels have approved these contracts and then tried to kick the costs can down the road.   By raising the contribution rate CalPERS is forcing the conversation.  Maybe the state should bail out local government and put the savings from the reduced prison population into solidifying the pension funds.

    1. Davis Progressive

      i don’t believe anyone is faulting calpers, only cities like davis for ramping up benefits too much that are now unsustainable and squeezing out core services.

    2. Dave Hart

      I agree the real story here is the failure of local and state government to honor their side of their agreements with employees over the years.  Government on many occasions asked employee groups to sacrifice direct salary compensation in exchange for pension benefits.  Employee unions and representatives were not always happy to take those concessions because their constituent members, employees, are always concerned with living in the here and now.  Pension increases were a promise to be paid later and half a loaf was accepted as better than nothing.  What caused most of the problem is that when government employers consciously chose not to honor the commitments they made at times when they actually had the resources to meet those promises.  For example, the State of California repeatedly failed to make payments into the PERS system in the 1990s when they actually had surpluses but also had good market returns on PERS investments.  They weren’t required to make payments, so they didn’t.  Employees, on the other hand, were paying their 5% to 8% of salary month after month, year after year regardless of how well the market did.

      Going forward it is very important to me that no government employer should agree to any contract without an annual cash flow analysis requiring them to pay on at least a 90% funding basis for retirement plans.

      It is very problematic if we overreact and reduce pension benefits below what is sustainable long term.  State employees union leaders bargained and their members accepted a significant reduction in pension benefits in 2011 and 2012.  Those union leaders risk losing their elected leadership status even now.  So, it is not correct to say that dialing back pension benefits cannot be done at the bargaining table.

      At the same time, there are a lot of winners in our economy over the last ten to twenty years who have been the recipient of government programs and tax laws.  These folks should be asked to do a little more in return.

  2. Topcat

    By a 71% to 14% margin voters want more not less funds to go to the maintenance of existing roads. Voters also favor more spending on new road construction, but by a narrower 48% to 35% margin.”
    However, the poll found there was no public consensus for how to pay for this. “When asked whether they would support increasing the state gasoline tax by 10 cents per gallon to improve the condition of state roads, voters are evenly divided, with 49% in favor and 48% opposed.”

    And here is the crux of the problem.  We (the taxpayers) want to have good roads, but we don’t want to pay for them. Raising the gas tax seems to me like the best way to finance road construction and maintenance.  It will take more political leadership than we have seen to make this happen.

    1. Sam

      Or the problem is we already have the highest gas tax in the nation that should be enough to pay for road repairs ($.39/ gallon + 8.5% Sales Tax) but for some reason instead of spending the money on the roads we are funding an obscene retirement plan and we (the taxpayers) don’t want to pay even more taxes because we believe that history will repeat itself and the money will be spent on overpaying employees instead of actually fixing the roads. (See firefighters contract in the mid 2000’s).

        1. Davis Progressive

          you haven’t established that the money is being misspent.  in fact, you haven’t accounted for how the money is being spent at all, so we have no way to evaluate either way.

          90 percent of federal and state gas tax funds in california go to highways and streets.  ten percent goes to rail and buses.  however, the gas tax only covers one third of the cost of building and maintaining roads.

          however that is not enough “In a 2011 report, the Institute on Taxation and Economic Policy said the gas tax had lost 41 percent of its value since it was last raised in 1993. It has lost about a third of its value to inflation. The recession resulted in less driving”

        2. Sam

          Locally in Davis the money is being misspent by overpaying firefighters. Drop their wages to equal the University firefighter wages and spend the extra money on the roads.

          Next, opt out of CALPERS for all City employees and move to a traditional 403B plan and spend the savings on the roads.

          Now you have more than enough money for the roads, are paying closer to market rates for employees and you did not have to raise taxes or charge tolls.

        3. Barack Palin

          DP, read my post again, where did I say just road taxes?  We’re being taxed enough in general.  Are you really trying to say that CA doesn’t misspend taxpayer funds and there’s no waste involved?

        4. Davis Progressive

          i’m sure money is being misspent, but that doesn’t mean we don’t need some of the money.  one of the reasons we have the roads crisis in davis for instance is we put too much into employee retirement.  but that doesn’t mean we don’t need roads money.

        5. Barack Palin

          one of the reasons we have the roads crisis in davis for instance is we put too much into employee retirement.  but that doesn’t mean we don’t need roads money.

          You just proved my point, we misspent on employee retirement so that’s taken away money that could’ve been better directed.

        6. Topcat

          Locally in Davis the money is being misspent by overpaying firefighters. Drop their wages to equal the University firefighter wages and spend the extra money on the roads.

          I agree that we should not be paying excessive wages to the firefighters. As I have said before, I would like to see our City Council adopt the attitude that we need to “live within our means”.  Unfortunately the council members seem to have adopted the attitude that we can just “grow ourselves out of trouble” by building a big new industrial park.

        7. Topcat

          Davis Progressive said: 90 percent of federal and state gas tax funds in california go to highways and streets.  ten percent goes to rail and buses.  however, the gas tax only covers one third of the cost of building and maintaining roads.

          If this is true, then the problem of paying for road and highway construction is not due to the money being diverted to other purposes.  In this case, I do think that the reasonable approach would be to raise gas taxes to cover the infrastructure needs.

          1. Don Shor

            http://sacramento.cbslocal.com/2015/02/08/gov-brown-seeks-money-for-fixing-roads-as-gas-tax-value-plunges/

            Gov. Jerry Brown’s administration is studying whether to tax drivers by miles traveled instead of gas guzzled. Changing the system could take more than five years, and lawmakers are calling for more money to repave roads and fill potholes in the meantime.
            They are considering a dollar-a-week fee on most drivers, a temporary gas tax hike, re-directing money used to pay off state debt back to road projects and converting carpool lanes into paid toll ways.

    2. Topcat

      Or the problem is we already have the highest gas tax in the nation that should be enough to pay for road repairs ($.39/ gallon + 8.5% Sales Tax) but for some reason instead of spending the money on the roads we are funding an obscene retirement plan…

      I was under the impression that gas tax money is designated for road construction and maintenance and cannot be used for other purposes.  If funds have been diverted away from those purposes, perhaps we need to change the laws to prevent such diversions?

    3. Tia Will

      We (the taxpayers) want to have good roads, but we don’t want to pay for them”

      I agree that this is the crux of the problem. I believe strongly that those  of us who use the roads should pay for their upkeep. I would support either an increase in the gas tax and or the institution of a system of toll roads, with mitigation for those who are economically disadvantaged potentially in the form of a yearly pass based on income level to offset the disproportionate impact on the working poor.

      1. Barack Palin

         I believe strongly that those  of us who use the roads should pay for their upkeep.

        There are many things that I don’t use for which I have to pay for.  I don’t use Obamacare yet I just did my taxes and Obamacare cost me a few hundred extra dollars.  I don’t ride my bike much but I pay the same taxes for our bike paths as our Davis avid bike riders.  Do you just want us to pay higher taxes for things that you deem that individuals need to pay for separately according to how much they use some of those public amenities?

      2. zaqzaq

        A sharp increase in the gas tax would have many positive collateral consequences beyond raising revenue.  It may encourage some individuals to utilize public transportation.  Others may decide to purchase electric, hybrid or high gas mileage vehicles.  These decisions that benefit the environment would also save money for the individuals who made these changes.  Toll roads are just a bad idea the requires additional infrastructure costs.

  3. Tia Will

    BP

    The problem isn’t that we aren’t paying enough taxes, the problem IS that the money is being misspent.”

    What a coincidence. I see this as being the case with our expenditures on unneeded military equipment and overseas aggressions which were called “defense” but which in reality have made us much less safe. Money that you consider “misspent” I consider peanuts in comparison with our overall national misuse of tax revenues which clearly demonstrates  not the one of us is right and the other wrong, but the highly subjective nature of the appropriate use of tax dollars.

    1. Frankly

      That US Constitution sure causes some problems for you.

      Maybe you can go to Cuba after retirement and help make it into a full nanny state with no defense spending.

      However, that type of thing does not work at all in the US unless you just want to ignore the Constitution and the Bill of Rights.

      1. Don Shor

        American citizens such as yourself, Tia, and I can all disagree as to what level of ‘providing for the common defense’ is appropriate without any implication that someone is “ignor[ing] the Constitution and the Bill of Rights.” Not every penny of the defense budget is mandated by the Constitution. Some, including myself, would say that attacking Iraq was not necessary to our “common defense” and that it was, in fact, a waste of money and lives.

        “Patriotism is the last refuge of the scoundrel.” — Samuel Johnson.

        More than likely we would also disagree as to what exactly is allowed, or not, for government to do as a constitutional prerogative. But once a government has hired people and provided pension plans and benefits, those employees have a reasonable expectation that those plans and benefits won’t be changed radically without some element of fairness considered.

        1. Frankly

          In 1965, defense spending was 7.2 percent of GDP and mandatory spending on entitlement programs and net interest was 5.7 percent of GDP, one-third lower.

          In 2014, spending on defense is 3.5 percent of GDP, or less than half of what it was in 1965, and falling, while mandatory spending (including net interest) is reaching 14.3 percent of GDP and growing.

          http://www.heritage.org/multimedia/infographic/2014/12/mandatory-spending-more-than-double-as-a-share-of-the-economy

          By this the US is actually heading to being more like Cuba, so maybe Tia does not need to move.

  4. DanH

    Fuel efficiency is steadily improving so a simple gas tax to fund road maintenance is less than optimal. Tax on a scale that takes vehicle weight and annual mileage figures into account instead of charging gas tax at the pump. The state could confirm these figures with DMV and insurance company data. Make owners of hybrid and alternative fuel vehicles pay their fair tax share. Bicyclists use the roads too and should pay road use tax on bicycle and tire purchases.

    1. zaqzaq

      You are spot on that increased fuel efficiency has a negative impact on gas tax revenue.  If you are going to transition away from a gas tax to a vehicle use tax based on mileage and weight should there also be a carbon emissions tax based on gas mileage?  It would be easier to just raise the gas tax creating an incentive for people to purchase electric, hybrid or better gas mileage vehicles.

      1. DanH

        If the purpose of a vehicle use tax is to pay for road construction and maintenance why add a separate carbon emissions tax based on carbon emissions? In the long run the price of fossil fuels will only rise. Vehicle buyers will still have a financial incentive to purchase higher MPG and electric vehicles.

        An add-on carbon emissions tax is a possibility but electric vehicles should not be exempt from it. Electric car owners should pay for carbon emissions incurred in the production of electricity. PG&E currently produces about 391 lbs CO2/1MWh.

  5. hpierce

    Topic, as I see it, is PERS contributions and road funding, arguably at both the local and State level.  Cuba is a reach I just can’t get to.

    Nor, military expenses at the federal level.

    1. Miwok

      why, they have Unversal Health Care! 🙂

      Besides, in Davis, I read it in the Vanguard the Roads repair and Maintenance is not even on the City budget..

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