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CalPERS move leaves SLO with multi-million dollar shortfalls

March 1, 2017

Following the California Public Employee Retirement System’s (CalPERS) recent decision to lower its investment forecasts, the city of San Luis Obispo is facing skyrocketing pensions costs. As result, also because of slowing tax revenue growth, the city is facing a structural deficit, which includes a projected budget shortfall of more than $5 million in 2021-2022.

By that time, San Luis Obispo will likely be paying about $20 million a year for pension costs, nearly double what the city is currently contributing to CalPERS.

Last December, the CalPERS Board of Administration voted to lower the pension system’s discount rate from 7.5 percent to 7.0 percent over a three-year span. The changes will begin taking effect for San Luis Obispo in 2018-2019. The same year, the city is projected to start having budget shortfalls, according to SLO’s recently released five-year fiscal forecast.

When CalPERS lowers its discount rate, member agencies’ pension payments and unfunded liabilities increase due to the projected decrease in investment revenue. City estimates suggest the .5 percent decrease in the discount rate will result in about an $11.5 million increase in SLO’s unfunded liabilities.

As of June 2015, San Luis Obispo had $126 million in unfunded liabilities, which was more than the rest of the cities in SLO County combined.

Due to a CalPERS policy that agencies must pay down their unfunded liabilities over a 30-year period, San Luis Obispo was already faced with rising pension costs prior to the December decision to lower the discount rate. The yearly increases in the city’s CalPERS payments will now be compounded by the decision to lower the investment forecast.

The lowering of the discount rate alone will cause SLO’s CalPERS payment to rise by $3.2 million by 2021-2022 and by about $5 million by 2025, according to city projections. In all, the city’s annual pension payment is projected to rise by $8.3 million by 2021-2022.

SLO’s most recent actuarial report projected the city would owe CalPERS around $11.7 million in the current fiscal year. Thus, the city’s annual pension payment will grow to about $20 million by 2021-2022. The yearly pension payment is on pace to be well above $20 million by 2025.

In the years 1999-2000 through 2001-2002, San Luis Obispo paid CalPERS $0 annually.  At the time, the city had no unfunded pension liabilities, meaning the money in its retirement plans exceeded the amount of benefits owed.

By the end of 2011, SLO had accumulated $107.3 million in unfunded liabilities. In 2011-2012, the city paid CalPERS a total of $8.4 million.

As pension costs have shot up, so has city’s budget expenditures. In 2002, SLO’s general fund budget was approximately $35 million. General fund expenditures, the majority of which are staffing costs, are projected to rise to approximately $85 million by 2022, according to the five-year forecast.

However, the city’s revenue is not projected to keep pace with its expenditures. Growth in revenue from sales tax and from transient occupancy tax is slowing, which has forced the city to lower its revenue projections.

The spiking pensions costs combined with the slowing tax revenue growth has left the city with a projected shortfall of $2.7 million in 2018-2019. Current projections show the city will have a shortfall of $5 to $6 million in 2021-2022.

SLO general fund growth

In turn, the city has activated its “Fiscal Health Contingency Plan.” The plan includes limiting the hiring to essential personnel and restricting the city-funded travel and training that is afforded to employees. Likewise, the plan calls for deferring or dropping some capital improvement projects and other one-time projects.

The contingency plan does not call for staffing reductions, nor salary cuts.

Unlike most other cities in San Luis Obispo County, SLO has grown its staff over the last decade. A recent CalCoastNews report revealed SLO added nearly 50 full-time employees between 2006 and 2016. City employees also received pay increases.

While the city implements its fiscal contingency plan, staff will work on a long-term plan intended to balance the budget. It is unclear if the long-term plan will include cuts to staffing costs, but City Manager Katie Lichtig issued a statement saying all options will be considered.

“The five-year forecast shows that we have both near-term impacts and a long-term structural problem. That requires us to look at all options to achieve a structurally balanced budget, which will happen over the next year,” Lichtig said. “All measures will need to be carefully weighed against service impacts to make sure we continue our commitment of high quality service to the community.”

City staffers plan to present a fiscal action plan at the April 18 SLO City Council meeting.


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Reduce ALL future State, County and City retirements back to 50% of Salary at retirement…period…They can all live comfortably at that retirement salary…


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Whatever happened to the County Grand jury? Wow, we are getting run over by the Government! I know that my tax dollars are going to go to? Santa Barbara county. Screw SLO,Dody,Jan Adam BAHAAA


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The incontrovertible result of socialism. You asked for it you got it.


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Unfortunately, CALPERS new rate of return is still unrealisticaly high which means that we the taxpayers will be asked to pony up more and more money to fund these absurd pensions.


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Of course the pension costs are going to bankrupt the city! What else could possibly occur?


Duh!


The question is, will the city tax the citizens to bankruptcy, decreasing tax revenues even more in the long term, while slightly improving the pension funding in the short term?


Or, will they do what everyone else has to do when they have no money?


Best and brightest? Ummmm……well, that’s rather ironic, isn’t it.


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The once “Golden State” ain’t so gold It’s become decayed, tarnished, and without much value.

Look for more of this throughout the state…our legislator’s and public officials CAN NOT continue to promote and support unfunded mandates.

A complete and comprehensive state-wide/county-wide desk audit needs to be initiated in order to finally get rid of all the dead wood.


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What cannot go on forever…won’t.


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CalPERS can easily be fixed by capping the maximum amount a person can draw from their pension. Cap it at a reasonable figure like $75,000 a year. After that, employees would have to fund their retirements with their own 401Ks.


The problem with CalPERS is not Secretaries and workers bees with their $40K annual pension. The problem is top level administrators like Mr. Lichtig with six figure salaries and public safety employees (police, fire) who rack up overtime and can retire at 50 years old. Those earning high wages in government jobs should have to fund their own retirements after exceeding the cap of $75,000. Lord knows they can afford it.


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The other part of the story is the slowing tax revenue — sales and hotel. Big surprise.


This is the result of some monumental stupidity at city hall. Their doctrine, is build shops, and revenue will go up. But it doesn’t work that way. At some point, shopping is saturated, and doesn’t continue to increase. New shops just steal sales from existing shops. Clearly, the city has long since reached that point. Look at all the vacant stores out on Madonna if you need evidence. Still, they’re letting Grossman and the Madonnas build still more. This is idiocy.


The retail saturation problem is compounded by what’s happened downtown. There’s no reason to go down there anymore to shop. Thanks to the Copelands and other greedy landlords, the shops are the same ones you find in malls everywhere. Nothing original anymore. Nothing unique. Just the same old trash, all of which can be purchased online for less, and with more convenience, than shopping downtown and paying the ridiculous parking charges the city has instigated to fund its parking garage construction.


Then there are the hotels. There are at least 5 under construction or in the works downtown that will be in the $250 to $600 a night range. Does anybody really think they’re going to be full enough to justify turning downtown space into this sort of rich tourists’ travesty just because city hall has dollar signs for eyes? Again, totally saturated. Totally stupid.


The city has made SLO a really sucky place.


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