City Finances - Originally Posted by Russell Buckley
I attended the City's Strategic Planning meeting last Thursday. It is a good opportunity for citizens to get a lot of information about what the City is doing - I commend the City Council and City Manager for opening it to the public. Unfortunately I counted only three or four attendees who weren't city employees. Put it on your calendar for next year!
The City is in a tight fiscal position - my idea of one way to help fix that problem is what I mainly want to talk about. Before I do, however, I want to note that what I learned at the meeting reinforced my impression (from living in the city for over 25 years) that we have a well-run city staffed by conscientious employees. I believe they do a good job.
But on to finances: La Mesa is certainly better off than the State, and probably better off than many other cities - but nevertheless we are in a tight spot. Immediately prior to the Prop L sales tax increase we were able to stay in the black only through sale of City owned property. Property can only be sold once. With the additional six million dollars a year raised from the Prop L sales tax increase we have been able to maintain a positive amount in our reserve fund. We are a long way from meeting our stated reserve goal of 40% of the general fund. We have one "unfunded liability" to the CalPers pension fund of about $24 million and another one of just over $2.5 million for retiree health benefits. The City (taxpayers) guarantees 100% of the pensions for retired employees. That means the taxpayers assume all of the risk for the funds adequacy to meet pension obligations: when CalPers doesn't make as much interest as planned for, taxpayers must make up all of the difference. The amount we pay into CalPers for our employee's pensions has grown considerably in recent years and is projected to increase considerably more (two million in the next three years). We also pay Social Security premiums for non-safety employees.
CalPers pensions are funded much like Social Security in that both the employer and the employee pay a share of the cost. For Social Security each pays an amount equal to 6.2% of employees salaries. When the City began providing a pension through CalPers, the cost was about 8% of salary for the employee, and the City (taxpayers) paid another 8%. Somewhere along the line, the City (taxpayers) began to pay the employee portion of the pension costs. Then, in 2003, an enormous increase in pension benefits was approved. By the beginning of the 2008/9 fiscal year, the cost to the City (taxpayer) had increased to about 33% of salary for Safety workers (police and fire) and about 27% for non-safety (and another 6.2% for their Social Security). Employees paid nothing.
At last years MOU negotiations, taxpayers were relieved of their burden of paying the "employee portion" (9% of salary for Safety and 8% for non-safety) of CalPers pension costs. I commend the Council and employee unions for making that overdue, but difficult and significant change. Employees now appropriately pay the employee portion of pension costs. However, as I mentioned above, the City (taxpayers) still pay far too much for pensions because we provide un-necessarily generous plans. They are much more generous than those enjoyed by most taxpayers (except, of course, other California government workers). To help our City's financial problem, (and in the interest of fairness to taxpayers) that needs to be changed now.
Law prohibits the City from changing pensions downward for a current employee - even one just hired this month. That means that whatever change we make will take time to realize its full potential. Those opposed to returning pensions to a more reasonable level will use that fact to argue against any change. However, the potential for savings, long term, is very significant. We need to start the revised pension program or we will never realize the significant savings it can generate. It is interesting that the law permitted a 50% increase in pensions, in 2003 - and it was also legal to make that large increase retroactive! But, I digress.
My point to all of this is that now is an especially opportune time to revise pensions for new employees to a level more nearly like those enjoyed by the majority of our citizens. The prop L tax increase lasts for 20 years, so we have that 6 - 7 million dollars per year to tide us over. We can use it to pay for the unfunded pension liabilities and restore our reserves to comfortable levels as years go by and the savings from a pension change becomes progressively larger. There are several ways to change pensions for new employees, but this blog is already long, so I won't discuss them now. Suffice it to say that we need to encourage our Council Members to choose one of them and aggressively bargain for a revised pension program for new employees as a part of the upcoming MOU negotiations. If we don't start this process, we will never see the significant relief it can bring to our fiscal situation.