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.”
2 comments
Those unfunded pension liabilities are SUPPOSED to continually increase due to the cause of those unfunded liabilities, Defined Benefits. We’re constantly trying to put band aids over the wound, but the only way to heal the wound is to change Defined Benefits to Defined Contributions, like the rest of the world. With Defined Contributions ONLY, we there would be no need for CALPERS.
Since the public pension system is severely underfunded, city governments need to fund the retirements of former employees by taking money from government services as the increasing pension costs will likely continue to crowd out resources that otherwise would go to public assistance, recreation, libraries, health, public works, and in some cases public safety. Benefit costs are slowly crowding out the discretionary money available for states, districts, and schools to spend on other priorities.
“Defined retirement benefits” are creeping into budgets, especially when those benefits are underfunded. The unintended consequences are that it’s unfortunate that future generations, unable to vote today, will bear the costs of many enacted pension programs, entitlements and boondoggle projects, requiring the younger generations to pay higher taxes and work later into their lives to pay for these promises.
The international business world is intelligent enough to know that DEFINED BENEFITS, neither capped nor precisely quantifiable in advance financial disasters to any business, thus all businesses focus on the known, i.e., defined CONTRIBUTIONS alone.
Stealing from the young who have no votes, but silently shoulder the costs and bear the burden of unfunded promises of these programs to enrich the old seems to describe the Governments expansion of entitlement benefits and other government services, along with the taxes young people will have to pay to support them, mostly to subsidize older Americans.
Even before those young folks can vote, our Golden State schools are on track to force substantial budgetary cutbacks on core education spending, as public schools around California are bracing for a crisis driven by skyrocketing worker pension costs that are expected to force districts to divert billions of dollars away from education and other government services.
These pensions will bankrupt city after city, county by county, state after state. Now is the time to cut pensions, promises from the past to future…this tactic of putting it off is NOT working…in the same way all the deferred maintenance has impacted infrastructure. Deal with it.
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