Citing pension costs, Costa Mesa, Calif., plans to lay off nearly half its employees

By Peter Whoriskey
Sunday, March 20, 2011; 8:45 AM

IN COSTA MESA, CALIF. Nearly half the city workers in Costa Mesa received layoff notices last week. Street sweepers. Firefighters. Mechanics. Payroll clerks. Animal control workers. In all, about 210 of the city's 472 employees, many of whom have worked there for decades. On Thursday, as the notices were being handed out, one maintenance worker committed suicide by jumping from the city hall roof.

"It's like they decided to blow up the city," said Billy Folsom, 58, a mechanic who got a pink slip. "It's devastating."

The cutbacks are necessary because the escalating costs of providing pensions for police, firefighters and other unionized employees are draining the city's revenue, city leaders say.

Within three years, city projections show, more than one of every five tax dollars will be spent on employees' retirement benefits, which were made far more generous in the years before the stock market crashed in 2008.

"Just do the math - this is unsustainable," said Jim Righeimer, the city's recently elected mayor pro tem. He campaigned on the pension issue, eliciting anger and a counter-campaign from the city's police and firefighters. "Under these kinds of burdens, we can't do everything the city needs to do."

The public pension fight

The financial follies of the boom years - by banks that lent too easily, by home buyers who bought places they couldn't afford, by consumers who didn't save - became obvious shortly after the recession.

But many states and cities may have overextended themselves as well, and the risks they undertook are now playing out in the public pension shortfalls provoking political battles across the nation.

Republican efforts to roll back public employee benefits and bargaining rights has triggered mass protests in places such as Wisconsin, Indiana and Ohio. But in Costa Mesa, where conservatives dominate city politics, the offensive against public worker compensation has gone further.

During the boom, many state and local governments promised their employees better pensions. Some employees were allowed to retire earlier. Others received a larger portion of their final pay. Financially, it was easy to do; the stock market was soaring, lifting pension fund balances.

Between 1998 and 2008, the last year for which figures are available, total pension payments by state and local governments rose twice as fast as their payrolls, according to census figures.

But now that the recession has led to steep drops in pension funds, those promises to past and present employees may be much harder to keep. Dozens of state and local pension funds around the country are now considered seriously underfunded. By 2009, about 58 percent of state and local pension funds were less than 80 percent funded, a standard benchmark of pension soundness, according to the Center for Retirement Research at Boston College.

The shortfalls have had far-reaching political ramifications. Already, some politicians ideologically opposed to public employee unions have attributed the problems to their greed and political influence. Now members of those unions are on the defensive.

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