A well-known financial analyst, talk-show host and Orange County's treasurer-tax collector recently described state retirement-funding forecasts as "all rainbows, butterflies and unicorns."
That beautifully poetic description appeared in an article by Chriss W. Street published in mid-January -- a blunt critique of the California Public Employee Retirement System's (CalPERS) announcement that it was slowly recovering from a catastrophic loss it suffered in 2008 from stock-market investments -- losses CalPERS passed through to local agencies.
Street used the phrase last March to describe President Obama's budget proposals, and the phrase has surfaced for decades, with origins in the late 1800s.
How that applies to Palo Alto and other agencies haunts city and school officials. Both faced major increases in retirement costs in the past decade -- with even bigger budget bites predicted.
This year Palo Alto is tackling the problem again, after three years of careful steps to improve matters. City Manager James Keene recently announced that the city will be negotiating with all its employee groups, principally the Service Employees International Union (SEIU), police and fire unions and a managers' group.
Success or failure could make a huge difference in whether Palo Alto can weather the rainbows, butterflies and unicorns that seem to be infesting public-employee retirement systems statewide. Wall Street insiders even use the shorthand "RBU" instead of the spelled-out "rainbows, butterflies and unicorns" to describe a proposal or business plan that is hopelessly optimistic, based on lovely fantasy instead of reality.
It's reality-check time. But reality is hard to come by, it seems. Each time the subject is raised it is drowned by masses of confusing financial data and projections and, often, ill-informed opinions that flood any discussion. It becomes a challenge not unlike, well, counting butterflies.
City officials got a dose of reality one year ago from relatively new Human Resources Director Kathy Shen, who joined the city 2.5 years ago after 35 years in the private sector -- where reality seems to have a firmer foothold than in public agencies.
Palo Alto's retirement plans apply to just under 3,000 current or retired employees. Retired employees would cost Palo Alto a projected $23.37 million for 2014, nearly 10 times the $2.4 million liability of 2003, Shen reported.
The city's health care costs also have ballooned, but just threefold -- from $10 million in 2002 to last year's $24 million, projected to reach nearly $30 million by 2016-17.
Statewide the deficit of mostly unfunded promises is climbing into the billions, heading toward trillions.
How did this happen? A simple, even simplistic, answer is that it's easier in tough economic times and tough negotiations to make promises for the future than to pay hard dollars in the present. And there is no law -- yet, at least -- requiring agencies to match their promises with real funding instead of, well, butterflies.
Only action by the state Legislature to loosen CalPERS requirements on local governments will improve the situation, Shen said, eliciting unanimous agreement from the council. But obtaining legislative action is not easy, especially over expected union objections in a Democrat-controlled state.
"That's a lot of people and we're going to be covering them for a long time," she said of the 2,940 individuals in city retirement plans, predicting (with some delicacy) that it will take up to 30 years for longer-time employees to pass through the system.
A big factor is that the state's retirement system itself is aging. In the century of its existence times have changed. Rather than retiring at 65, many employees today retire at 55, or even 50, and most are living substantially longer, Shen noted. Many owned their homes with paid-up mortgages, and retirement-income expectations were lower while day-to-day living was cheaper.
That's all been turned upside down, she said.
It's not that Palo Alto hasn't been trying or has been unaware of the looming crisis. In 2007, city management and SEIU agreed to swap lower health care benefits for a significant (but money-saving) boost in retirement pay. In 2008 the city adopted a two-tier retirement system that will provide lower retirement benefits for new employees.
Palo Alto generally is in far better shape than many other cities statewide, three of which have filed for bankruptcy, citing retirement and health care costs.
For all agencies, the retirement bite -- unions have real teeth in many jurisdictions -- is taking chunks out of general services for the community and schools, threatening to eat up half or more of agencies' annual budgets and services. Killer butterflies, like locusts?
There has been growing recognition of the crisis, in part due to the virtual one-man crusade conducted over several years via email by Peter F. Carpenter, a member of the Menlo Park Fire Protection District Board of Directors with a lengthy background in administration at Stanford University, in private industry and the military, where he was once a parachutist. Carpenter mainly forwards articles relating to public-employee pensions and their impact on agencies. (To get on his list, email email@example.com.)
Assessing the future, it seems, really is like counting butterflies.
I once asked that question as a reporter for the erstwhile Palo Alto Times, after I noticed thousands of small yellow butterflies flitting through the Stanford campus. I found an elderly entomologist in an octagonal building behind the Stanford Museum, housed in an office that looked as if it came from a Jules Verne novel, all dark wood and brass and glass.
He asked me to help him find people "to count butterflies." How? One places a chair some distance from where one sits and counts the butterflies passing between the chairs in a given time period. Then one checks the width and duration of the migration and makes a general estimate of how many millions are migrating.
Much like government budget forecasts, watching dollars flit past.
Former Weekly Editor Jay Thorwaldson can be emailed at firstname.lastname@example.org. He also writes periodic blogs at www.PaloAltoOnline.com.