CORRECTION: An earlier version of this article incorrectly reported that San Jose participates in the CalPERS system. The city has its own separate pension systems: Police and Fire, and Federated. The article also previously reported that San Jose funded $5.9 million of its $9.5 million in accrued pensions. The exact numbers are $5.9 billion and $9.5 billion.
The state pension system that oversees pension benefits for 2 million public employees, retirees and their families has long been described as a ticking time bomb, a looming crisis and a can that elected officials keep throwing on the road.
After swim in liquid following the halcyon dot-com boom in the 1990s, the state promised public employees more money and benefits than they could reasonably be expected to deliver decades later, especially since many plans are committed to supporting retirees until they die. Overall, reports indicate that statewide retirement systems, including CalPERS – California’s public employee retirement system – are now hundreds of billions of dollars short.
To accommodate booming payments to CalPERS and other plans, some cities cut staff rosters, cut program services and raised taxes. But other governments – drowning in debt – have also declared bankruptcy and abandoned their pension plans.
It’s a statewide dilemma, but several Bay Area cities now face “moderate risk” of a strained financial future due to their unfunded retirement obligations, according to the latest. state auditor’s report. ranking of 482 cities in California.
Regionally, Richmond earned the worst overall rating, ranking 10th on the list of cities at risk for the 2020-21 fiscal year. Not far behind, Oakland ranked 11th and El Cerrito 13th. San Jose landed at No. 20.
Notably, each of these four cities has the unwanted honor of sharing the No. 1 spot – alongside more than 30 other cities – as local governments. least prepared to face future costs pension plans and employee benefits.
The state’s online dashboard, created in 2019, provides a financial health snapshot that gives Californians a transparent and understandable view of how their tax money is being spent. It calculates each city’s ability to pay its bills based on the previous year’s risk factors, measuring general fund reserves, debt burden, liquidity, revenue trends, pension funds and benefit obligations.
San Jose
Crafting a solution to looming unfunded pensions has plagued San Jose for years, resulting in two ballot measures to reduce costs to taxpayers. San Jose’s pension and retirement costs have come down with high returns on its investments, but funding to meet its current retirement obligations ranks second in California — only behind Compton.
The city’s $3.5 billion in pension liabilities represented 132% of the $2.7 billion the city raised as revenue in 2020-21 and last year’s contribution of $385 million. to the city’s two pension plans — Police and Fire, and Federated — gobbled up 14% of city budget revenue.
Additionally, San Jose has only funded $5.9 billion of its $9.5 billion in accumulated retirement debt.
Jim Shannon, the city’s budget manager, says he’s not too worried. Pension costs are still higher than city officials would like — about 18% of the 2022-23 general fund budget — but Shannon said San Jose is in a period of stability.
“I think we’ve taken our meds and are in a pretty stable place – actually a better place than we’ve been in a while,” Shannon said.
richmond
Richmond’s pension obligations exceed its $302 million in annual revenue by 173%, meaning annual CalPERS payments will “likely strain the city’s financial resources,” according to data from the Auditor’s Office. State.
As the city of 115,000 is one of the most troubled when it comes to preparing for future pension payments, Richmond Mayor Tom Butt cited a special tax that adds a surcharge on property tax bills directly into benefit plans.
“We’re kind of in better shape, where other cities might have to take that out of their general fund,” Butt said. “Our special tax mechanism that helps us pay kind of alleviates the problem.”
However, the state auditor’s scorecard shows that Richmond’s looming retirement costs still pose a threat to keeping city services and priorities at satisfactory levels.
In the past fiscal year, CalPERS billed Richmond $37 million in pension contributions, which represents 12% of the $303 million in revenue paid into the city’s coffers.
According to CalPERS projections, this payment will grow to $53 million – 18% of revenue – by 2028. And that’s based on current market conditions; a recession could raise these rates and hurt incomes in years to come.
While Butt blames the hefty bills on unions that negotiated generous pension plans, he said the state auditor’s scorecard legitimately flags danger signals.
“It is what it is and you can’t get away with it, but it’s not a bleak financial future as long as Richmond has the income to pay those retirement obligations,” Butt said. “So far we have done that.”
Oakland
Similar to Richmond, Oakland also has a special tax to help pay retirement obligations. Yet all of the city’s high-risk scores also revolve around the ability to pay those benefits.
Oakland ranks 24th worst in the state for its more than $2 billion in pension liabilities, which represents 140% of the $1.48 billion the city collected in fiscal year revenue. previous.
Last year’s $222 million contribution to CalPERS accounted for 15% of the city’s general fund revenue — a statistic that ranks 11th worst in the state. By 2029, payments are expected to be closer to 18%.
“These are universal issues, so to some extent it doesn’t surprise me, it doesn’t alarm me,” said Erin Roseman, Oakland’s chief financial officer. “It’s a problem you can’t solve overnight, but it’s a long-term solution and we’re on the way there.”
Looking ahead, she said employees hired after 2013 will have less of a financial impact on cities when they retire – thanks to state reforms of generous packages offered in the past.
The Cerrito
Herculean efforts to cut city spending, a corrective action plan from the state auditor’s office, and an infusion of federal COVID funding have helped shift El Cerrito’s unrestricted general fund reserves from a negative amount of $1.7 million to over $7 million.
Although this is the first year the town of just 26,000 has gone from ‘high risk’ to ‘moderate’ since the dashboard was launched, officials still face an uphill battle to fully fund employee benefits. .
For the 2020-21 fiscal year, the city’s $70 million pension liability was 123% of the city’s $57 million revenue.
The city’s current obligations exceed any revenue that comes into its coffers, and city officials have only saved enough money to fund 78% of the $224 million in retirement debt they must pay. It’s the 39th worst in the entire state.
Additionally, when it comes to retirement costs, the city’s annual contribution to CalPERS — $7.7 million in the prior fiscal year — represents 13% of all revenue sources, making it is worth the 21st worst percentage in the state.
Hoping to maintain the momentum after avoiding insolvency and bankruptcy filingCity Manager Karen Pinkos said officials plan to create a trust that would set aside funds specifically for retirement costs.
“We’re a small town, so we have to try to get ahead,” Pinkos said. “The short-term solutions that have been put in place are now bearing fruit, as the city has been in the dark for two years and we have reached our reserves. But now we have to look forward. »