Has SLO gotten a grip on its pension problem?

November 4, 2014

By JOSH FRIEDMAN

Ahead of Tuesday’s vote on San Luis Obispo’s half-cent sales tax, state pension reports have emerged indicating that the city’s unfunded liabilities have decreased slightly, but its annual retirement costs will likely rise by several million dollars over the next decade.

San Luis Obispo has more than $115 million in unfunded pension liabilities, as of June 30, according to reports released last month by the California Public Employees Retirement System (CalPERS). The city has accrued more than $300 million in pension costs, and the value of the assets in its plans is less than $200 million.

But, during the 2012-2013 fiscal year, San Luis Obispo’s total unfunded liabilities dropped by about $7 million. The decrease in pension debt can largely be attributed to a spike in CalPERS investment returns, which jumped from .1 percent in 2011-2012 to 13.2 percent in 2012-2013.

Still, the drop in unfunded liabilities prompted city management to issue a city council memorandum heralding the latest CalPERS reports as good news.

“This is positive news in light of the action taken to assertively address these liabilities over the past year,” city finance director Padilla wrote in the memo. City Manager Katie Lichtig then forwarded it to the council.

Earlier this year, the council set aside $935,000 to contribute to CalPERS in order to help pay down the city’s liabilities.

Nevertheless, the city currently spends more than $10 million a year just to make its minimum payment on the pension plans, an amount that could soon spike.

CalPERS has planned a five-year rate hike beginning in 2015-2016 in order to narrow the funding gaps in pension plans. By the end of the rate hike in 2020-2021, San Luis Obispo will owe CalPERS approximately $14.3 million for its minimum payment, according to the rate projections in the most recent reports.

However, if the city’s payroll increases, so will its pension costs. Annual sums owed to CalPERS are calculated as a percentage of payroll costs.

City management is currently in negotiations with its employees’ unions over new bargaining agreements. Worker pay is expected to rise as a result of the negotiations because the council has already signed off on a study indicating that San Luis Obispo employees are, by in large, underpaid.

If city staffers indeed receive pay increases, San Luis Obispo’s annual pension costs could eclipse $15 million during the current decade.

In comparison, the city owed CalPERS $8.4 million just three years ago. However, for several fiscal years beginning in 1999 the city chose to forego payments.

But, in the decade that followed San Luis Obispo foregoing payments, the city accumulated more than $100 million in unfunded liabilities. As the liabilities have increased, so have the minimum payments to CalPERS.

For the past eight years, though, the city has had its own sales tax revenue to lessen the burden.
Since 2006, the passage of a half-cent sales tax has generated about $7 million annually.

But, the tax expires on March 31, 2015. Measure G, a new half-cent sale tax slated to last eight years, is on Tuesday’s ballot.

If the tax fails, city staff has offered the council several options to cut spending enough to balance the budget.