City council corner: Pay off your pension debt

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Laura Ferguson

From Councilor Laura Ferguson

This year’s long-term financial plan included a paper about the city’s unfunded CalPERS pension liability, which grew to $ 49.5 million. This was a positive first step in acknowledging the problem, publicly discussing it and realizing that the city needs to be more aggressive in repaying pension debts in order to ease the growing burden on taxpayers.

Now is the time for the city council to come up with a specific written plan / policy that will identify funding sources and allocate a specific dollar amount to make additional payments to the pension fund in excess of the annual amount required to pay off the pension debt.

Our city’s last annual contribution to CalPERS was $ 750,000, but at that rate it would take more than 50 years to pay off.

The city’s pension plan is 68% funded. When a pension is 80% funded, it is considered healthy, although full funding is best. I believe the city can come up with a realistic plan to improve its funding position and pay off pension debt without selling hard assets, cutting down services, or cutting existing staff.

Timing is critical as pension debt or unsecured debt can grow unexpectedly. For example, in a short span of time, from June 2020 to February 2021, the city’s unfunded pension liability increased by $ 4.5 million.

We can’t go out on the street any longer. Making occasional payments from one-time resources and budget savings will no longer work. An additional annual payment to the pension debt must become a household item (item) for the retirement of the city pension debt.

Other municipalities do this and decide plans to make these additional payments and millions of dollars are saved in the long run.

Newport Beach City Council approved a plan for additional payments to CalPERS that is expected to save $ 47 million over the standard payment plan over 30 years. And Huntington Beach City Council approved additional payments to CalPERS based on analysis by an independent actuary that showed that every additional $ 1 million donated to CalPERS will save $ 5 million over 25 years.

These measures are necessary to provide retirees with sustainable pensions and protect residents from future cuts in services and programs, and I would like that to happen in San Clemente.

How could we come up with these additional payments? Since consultant costs are a low hanging fruit, I think this should be the first to reduce. At my request, the city manager provided a list of advisors (totaling US $ 5-6 million) to be reviewed by council members at our budget workshop in June.

I suggested identifying up to $ 2 million in cuts from this list. Staff are revising the list and are expected to submit it to the council later this month.

By eliminating toll marketing / strategic communications consultants and lobbyists, simple savings of USD 528,000 per year can be achieved. The court ruled in late July that the city’s lawsuit against the TCA was disputed because the toll road was not being extended.

It is one thing to fight when the threat is there, but there is no reason to waste money on advisors now.

Further savings could come from our legal services budget if capped at $ 1 million per year. Further savings can be found through wear and tear. The Council does not want to cut staff. As people retire, we should analyze jobs for their need and see if they can be outsourced in order to generate savings over time.

The Council could also consider adding “new employees” to defined contribution plans to further reduce the pension burden.

Our advice can be pragmatic, directing employees to come up with smart strategies, sensible solutions, and a plan that the advice can adopt and advance.

As policy makers, the council needs to take control of this issue and instruct staff so that they have a clear path to repay their pension debts to ensure the city remains on a solid financial footing.

Laura Ferguson was elected to the San Clemente City Council in 2018.

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