But is it fair to punish the pensioners for the mismanagement of city officials?
In a nutshell, this is what happened: when taxes and revenue were booming across the country in the 90s, many cities stopped paying into their pension funds. They invested the funds--or part of the funds--into Wall Street and thought that was the clear solution. Then they blew the money they saved on raises, new cars, civic improvements, etc.
But then Wall Street crashed and took many pension funds with it. But this did not relieve local governments of their responsibility. They'd signed contracts with police, firefighters, agreeing to a certain pension. It was part of the compensation package. But after mismanaging pension funds and failing to pay into them regularly the cities are now faced with an onerous choice: cut pensions or cut jobs? And is it even legal to cut pensions? Private business does it to people, but the legality of that is still questionable.
Oakland chose to layoff 80 cops and dozens more California cities are facing the hard math of the situation as this recession spreads out before us.
Public pensions put state, cities in crisis
David Crane, Gov. Arnold Schwarzenegger's special adviser for jobs and economic development, called the pension crisis "the largest single financial issue facing state and local governments."
The problem traces its roots to the dot-com boom of the late 1990s.
Back then, soaring stock prices swelled the value of pension funds to the point where many state and local agencies were able to reduce or eliminate their annual benefit payments - using Wall Street gains to offer public employees a perk that appeared to have little or no cost to taxpayers.
"Everybody was raising benefits without thinking of the long term," said Kil Huh, director of research for the Pew Center on the States, which recently surveyed this nationwide problem.
California started down the path of more generous public employee pensions in 1999 when state lawmakers passed SB400.
The law permitted state public safety officials to retire earlier and at higher pay than was previously the case. Comparable benefits soon spread to local police officers and firefighters and eventually became the norm for most public employees.