Case study: Why tax increases end up paying for pensions, not providing services

Sacramento's Measure U, passed last year, raised city sales tax by a half a cent. The measure passed, with city officials promising more spending for affordable housing and infrastructure. Read here about why those revenues may not go to local services.

Dan Walters reports in CalMatters that Sacramento citizens may never see any improved services because the Measure U monies may end up going to "the financial gorilla that is prowling city hall—rapidly rising costs of pensions for city employees that threaten to soak up all the money."

The California Public Employees Retirement System, knows as CalPERS, has immense unfunded liabilities, acquired during the Great Recession. Despite a decade of economic growth, CalPERS is still under water.

"Eventually, to meet its ever-increasing pension payments, Sacramento will either have to use Measure U's revenues, thus setting aside...civic improvements, or cut other city services."

Walters notes that cities and counties across California, including Santa Clara County, are facing tradeoffs. He quotes U.C. Berkeley professor Sarah Anzia foreseeing "a pension-induced transformation of local government," in which services and headcount dwindle as government agencies struggle to make up for "some very expedient, ill-considered decisions two decades ago that sharply increased pension benefits retroactively without setting aside money to pay for them."

This article originally appeared in CalMatters. Read the whole thing here.

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