Central Contra Costa Sanitary District officials plan to raise sewer rates 18 percent over the next two fiscal years. Simply put, it's a pension tax.

In a legally required notice mailed to residents, district officials say they need money for capital improvements, salaries and benefits, and payments on the unfunded liability for retirement programs.

While the money could be allocated to all those purposes, the big driver is an exceptionally expensive and badly underfunded pension plan. The rate increase will generate $5.4 million during the upcoming 2013-14 fiscal year, during which the district will spend four times as much on pension contributions.

District directors deserve credit for their responsible plan to start propping up the pension plan even though that adds to the sewer agency's retirement costs. But they should be sharply criticized for the five-year labor agreement they approved in December that will significantly drive up salary costs.

The district serves residents from Martinez through Walnut Creek and Lamorinda to San Ramon. Rates have increased 85 percent since 2000 to the current $371 annually for a single-family home.

On Thursday, the district board will consider the next rate hike. More are planned. The district's long-range budget forecast assumes nearly doubling rates over the next decade.

Most revenue goes to district operations, primarily salaries and extraordinarily costly benefits. In fact, the district plans to spend more next fiscal year on benefits for employees and retirees ($37 million) than on salaries ($27 million).

Here are some reasons why benefits are so expensive:

  • Pensions ($15.6 million). The district plan enables most workers retiring at age 63 or older to collect starting annual pensions equal to 2.418 percent of top salary for every year on the job. For a 30-year employee, that works out to 73 percent of salary.

    But actually it's much more. The district also allows workers to save unused vacation and sick leave, which they can add in when calculating their pensions. This helped workers retiring in 2012 and this year boost their pensions an average 28 percent. Then, after retirement, the pensions increase annually for inflation.

    It's an expensive program. Funding it currently requires payments of 68 cents for every $1 of payroll. The district pays most of the cost. Under their new contract, employees will contribute about 5 cents next year, increasing to about 10 cents in 2017.

  • Health insurance ($5.5 million): The district offers free Kaiser coverage and dental insurance for employees and dependents.

  • Retiree health ($7.7 million): Current retirees receive free coverage until they collect Medicare. Then their Medicare supplement is partially or fully covered.

  • Unfunded liability ($5 million): The district pension and retiree health care programs are badly underfunded. The pension plan has 58 percent of the assets it should; the health care plan has 27 percent. The shortfalls total nearly $200 million, roughly 2½ times the district's annual operating budget.

    That money should have been set aside as employees worked and earned the benefits. Instead, the district is making future generations pay it. The longer they stretch out the debt, the greater the generational cost-shifting and the larger the price-tag.

    That's why the board smartly plans to use $5 million to pay down pension in debt each of the next three years and $10 million in the subsequent six years.

    It would be nice to end this column on a positive note, applauding a government agency for doing the right thing. But there's the new five-year labor deal.

    The contract requires workers to increase their pension contributions each year by 1.25 cents for every dollar of payroll. But that pales in comparison to their annual salary increases equal to the Bay Area inflation rate plus 1 percentage point.

    They will continue to receive free health insurance and enjoy the leave accrual policy that enables them to spike their pensions. (The only chance of change there lies with a new state pension law currently tied up in court.)

    If not for the generous contract, there would have been more money available for paying off pension debt -- and less need for rate increases.

    Daniel Borenstein is a staff columnist and editorial writer. Contact him at 925-943-8248 or dborenstein@bayareanewsgroup.com. Follow him on Twitter: @BorensteinDan.

    IF YOU GO
    The board of the Central Contra Costa Sanitary District will hold a public hearing on a proposed 18 percent rate increase at 2 p.m. Thursday, 5019 Imhoff Place, Martinez.