Vallejo is in a battle with the firefighters union over pay issues.
We should probably follow this battle closely and treat it as a sort of voter information package. Anyone struggling to provide for their own retirement should pause to consider what we have voted to bestow upon our civil servants.
In most communities, a typical retirement benefit will be equal to 90 percent of the highest three years of compensation. This explains why there is a reasonable effort to clock a lot of overtime toward the end of a civil service career. Beyond this base benefit, the dollar amount will be subject to cost-of-living increases. That makes sense. It's expensive though, because if we remember the early 1980s, we know that inflation can roar at double-digit annual rates.
Also, people retiring from police and fire departments at age, say, 50 may still have 45 years to live. That leaves time for a lot of inflation-fighting retirement pay increases that can easily triple today's $60,000 benefit to an eventual $180,000 per year -- for just one person.
When voters or supervisors vote to reduce the eligible retirement age for a group of civil servants, it can be the equivalent of handing each employee a check for several hundred thousand dollars.
However, because it's a future promise, nobody has to pay for it today. If there was ever a legitimate reason for Gray Davis to be recalled, it was his caving in to the unions demanding earlier and earlier retirement. We should long for the days when "Governor Moonbeam" had the presence of mind to say "No."
Beyond just the retirement benefits themselves, there is a question of how they get taxed. If the retiree is deemed to have sustained a job-related disability, then the retirement income is tax-free. In many communities, an amazing 30 percent of retiring civil servants have varying degrees of job-related disabilities. The slightest touch of heart disease is automatically deemed to be job-related regardless of any lifestyle habits or family history.
This tax issue doesn't affect us as local taxpayers, but it does affect us on April 15. Retiring civil servants receive their scheduled benefits.
Whether the retiree has to pay taxes on it or not, the cost is the same to the community. However, the local retirement board, usually made up of about five to seven appointees, conducts hearings to determine who is to receive retirement pay as a disability payment (tax-free) or just a conventional retirement benefit (fully taxable). Retirement boards have no financial reason to care one way or the other.
Our federal government ought to care, but they are out of the picture.
If as much as 15 percent of all American workers are civil servants and about 5 percent receive tax-free disability income in place of taxable retirement pay, there's a huge hole in the system.
In 1970, when I was an Army officer in the Medical Services Corps, I noticed healthy retiring senior career officers jumping through hoops to be deemed disabled. It all makes sense. If they succeeded, those folks have been collecting tax-free retirement pay all these years.
Two things have to happen to straighten out the broken system.
We have to freeze all civil-service-defined benefit increases and deposit future annual contributions into 401(k)-type retirement accounts and let the investment chips fall where they may. Cash is king.
When we deposit it into a plan, we know what we just spent. By comparison, when we wave a magic wand and lower a retirement age for pension purposes, there is absolutely no accountability or concept as to what the dollar cost of that promise might have been. Even actuaries often can't agree.
Step two would be to have Social Security make the determination as to whether anyone is disabled.
This decision must be made at the federal level, because it affects federal tax revenues dramatically. It should not be left to local, fellow back-scratching retirement boards that are entirely revenue-neutral when it comes to determining taxable or tax-free benefits.
Either that or do away with tax-free disability income, period.
Why should someone disabled receive any better tax treatment than any other retiree? Most disability income in the private sector is fully taxable.
Finally, a darker view of this subject concerns the power of retirement boards to create tax-free income for some lucky people.
Could this capacity for favoritism create some political leverage in other areas of a civic organization?
And why, in some cases, is it the same collection of doctors endorsing all the disability recommendations?
To the extent this entrenched system fails to pass the smell test, the rest of us are bearing a higher federal tax burden than is fair.
So far, my research in this area has been purely anecdotal -- talking to fellow citizens who, in some cases, actually serve on retirement boards. But I've heard enough.
There's too much at stake when communities are going broke and the country has amassed trillions in debt.