Addressing the city’s growing pension debt liability is, perhaps, the top priority for the City Council.
On April 25, the council voted unanimously for a deposit of $14 million to its newly approved Section 115 Irrevocable Pension Trust, which was passed on Feb. 14. The trust allows the city to prefund future pension costs, mostly from one-time sources.
The $14 million comes from the Successor Agency Loan Repayments over the next four years and will be added to the $1,984,000 from the initial deposit. Funds in the trust are permanently committed to the pension obligations.
The council also discussed contributing funds from city real estate sales and any surplus from the General Fund. Those points, however, will be considered when they occur so the council can decide what percentage, if any, will be deposited into the trust and ensure services will be funded.
“We need to be constantly watching this or else you will have no other options than to default or start laying off employees,” Escondido City Attorney Jeff Epp explained to the council. “Your options would become none or drastic.”
Escondido’s growing need to fund its CalPERS requirements stems from analysis estimating a 63 percent increase (about $11 million) for its pension contributions in the next five years, according to Joan Ryan, the city’s assistant finance director. She said Escondido is facing a potential $14 million budget deficit by Fiscal Year 2020-21.
By FY 2023-24, however, the total skyrockets to $35 million per year as the average contribution per year, which is double ($17.4 million) what the city current pays. For FY 2018-19, the city is on the hook for $19.2 million.
The $14 million is a way for the city to at least buy time and use it as a means to cover any differences the General Fund cannot cover.
“I don’t think any of us were anticipating this type of a recommendation, which is somewhat severe,” Councilman Mike Morasco said. “This is what we are going to need ongoing to achieve the goal. It’s probably what we need to do.”
The city’s operating budget, Ryan said, is expected to increase by about 2 percent each year for the next five years.
As for the fund, Epp said returns are expected to be at about 5 percent versus the city’s reserve fund, which would be about 2 percent, Epp said.
To start FY 2018-19, there was a projected $5 million gap, Ryan explained. However, department budget cuts, outsourcing library operations and smaller CalPERS contributions, and other means, totaled $2.9 million to lessen the obligation.
“If we put it in the General Fund, the council can do whatever it wants,” Mayor Sam Abed said. “I appreciate the staff making really bold and solid recommendations to us.”
He said he is concerned for services for the city, while the council is not confident the state will fix the pension concerns.
Councilwoman Olga Diaz said the $14 million wasn’t counted on by the city, so it makes sense to put into the fund. Additionally, she said the money in the fund is safer so future councils cannot use the money for other projects.
“My inclination is to sock away as much money in the 115 as possible,” Diaz said. “I would say protect and hide the money.”