Oakland’s Police and Fire Retirement System has been ballooning in cost and underfunding for more than 60 years. Most recently, it forced the city to issue more pension obligation bonds to avoid dipping further into the general fund.
Should the city not have issued more than $210 million in bonds, it would have had to pay $38.5 million from its general fund to cover this year’s contribution to the pension system that is just 38 percent funded. The POBs will cover the city’s contributions for the next four years, keeping the city from cutting the equivalent of the entire library and parks budget. But the borrowing will cost $105 million in interest over the next decade.
The pension system has about 1,000 retirees and widows receiving benefits. The system allows the beneficiaries to receive annual raises to bring their payments to two-thirds of current employee salaries. That created a generous pension structure that lacked a sufficient funding plan.
From the San Francisco Chronicle:
It was 1976 when the city of Oakland realized it had a major problem on its hands: A pension created 25 years earlier to benefit police officers, firefighters and their widows was proving too costly to afford.
So the city closed the plan to new employees and later passed a parcel tax to pay for the pension. Yet today, that pension remains the source of one of Oakland’s biggest headaches.
Read the full article here.