A Tale of Two Cities

Encinitas and Berkeley, like many California cities, have a serious problem with escalating pension costs due to years of financial mismanagement at both the cities and CalPERS.

Recently, we saw how Encinitas city management communicated internally and to the public about the pension crisis. That is, with false reassurances:

"the city has already included a 10% annual increase in the current six year financial plan beginning in FY 2015/16."

In contrast, see how Berkeley officials discuss the same circumstances in their city:

“This is a pretty grim projection for the future,” said Mayor Tom Bates. “The assumption (on the rate increases) is there are no salary increases and no new employees. It’s difficult to imagine there won’t be an increase over that time. We’re headed for some really difficult decisions down the road, there’s no doubt about it.”

“Those numbers are shocking enough without seeing them going up,” said Capitelli. “People are retiring at an earlier age and living longer.”

Finance director Hicks said the primary driver for the rate increases is Calpers’ investment returns (see table above). In the year to June 30, 2013, its investments gained 13.2%, 5.7% higher than the assumed 7.5%. But that excellent year, and the likelihood of another bumper year to this June 30, does not make up for the severe losses in 2008, 2009 and 2012.

“This is not just a Berkeley problem, this is a major problem for the state of California,” Bates said. “The state needs to step into this. It’s going to hemorrhage all over the state. We’re putting ourselves in the position where there’s going to be a major hit on the economy.”

Which kind of city management do you want: the kind who will tell you comforting lies or the kind who will tell you the difficult truth?