Next CalPers Victim: City of Chico

This is what the collapsing, ill managed CalPERS is doing to the people of Chico:

“The city’s total unfunded pension liability, what it would owe if all employees retired tomorrow, is just shy of $120 million.

Chico’s annual pension contribution rate to CalPERS is projected to increase by $3.2 million in just five years. In the latest budget, $6.5 million was earmarked.

City Administrative Services Director Scott Dowell called the projections shocking, and said the city needs to plan for it now to avoid “huge consequences” in the future, like whether to borrow money, reduce staffing levels or cut services in order to keep the budget balanced.”

City after city in California are faced with terrible choices—either continue to give CalPERS everything ti wants each year and cut basic services—or stop paying CalPERS and go to court to figure it out.  If you go to court, CalPERS will stop sending checks to your retirees.  Chico today, your town tomorrow.

Calpers headquarters is seen in Sacramento, California, October 21, 2009. REUTERS/Max Whittaker

Retirement plan liability looms over Chico

By Ashiah Scharaga,, Enterprise-Record, 8/1/17

Chico >> It’s going to be a long road ahead when it comes to the city’s looming retirement plan obligations.

Pension contribution rates will dramatically increase for the city of Chico the next few years, putting further pressure on the General Fund, which pays for public safety, parks and roads.

Tuesday, the City Council talked about what’s to come, and where to go next. City Manager Mark Orme said city staff is working with the California Public Employees Retirement System to share Chico’s story and explain what’s happened: pensions versus providing services.

The city’s total unfunded pension liability, what it would owe if all employees retired tomorrow, is just shy of $120 million.

Chico’s annual pension contribution rate to CalPERS is projected to increase by $3.2 million in just five years. In the latest budget, $6.5 million was earmarked.

City Administrative Services Director Scott Dowell called the projections shocking, and said the city needs to plan for it now to avoid “huge consequences” in the future, like whether to borrow money, reduce staffing levels or cut services in order to keep the budget balanced.

Dowell is going to speak to the CalPERS board in September.

In the meantime, Orme said he’s going to continue to look for efficiencies in city operations and cut costs. When it comes to staffing, Chico will have to “try to stay lean and mean.”

“This is not a Chico-specific issue, this is a statewide issue,” he said. “This is something we’re all going to have to face.”

Mayor Sean Morgan said a lot of citizens don’t seem to understand that the city can’t just walk away from CalPERS or change parts of the pension contracts on its own, even if it’s a good idea.

“There’s things that we just can’t do,” Morgan said. “We can’t just leave CalPERS without paying $175 million.”

Currently, the rates the city pays to CalPERS are 38-39 percent, with the employees paying 8-12 percent. Any employee contributions to plans above the current rates have to be negotiated.

If the contract is canceled with CalPERS, the city has to pay off all of its liability along with a termination fee.

Councilor Randall Stone said individual employees aren’t to blame, but the city cannot continue to offer pay raises to employees while at the same time asking them to pay for more of their benefits.

“The benefit the employee’s receiving is overwhelmingly paid by the city, by the employer,” he said. “We can’t continue to do that, obviously.”

Councilor Mark Sorensen said the city can “look fondly” on a 40 percent contribution rate to CalPERS, because more than 60 percent is coming its way by 2022.

As CalPERS’ current assumed rate of return drops from 7.5 to 7 percent over the next three years, cities using CalPERS will have to cover more and more of their employees’ retirement plans.

It’s not just services that are affected by pension costs, but jobs.

“As those pension costs rise by many millions per year, that’s unfortunately what it comes down to,” he said.

Vice Mayor Reanette Fillmer said CalPERS has become like Hotel California — once you get in, you can never get out. PERS needs to look at its overall contract and determine if there are changes it can make to help cities provide infrastructure and services to taxpayers.

“When you look at a PERS contract and there’s no way out, there’s an issue with that,” she said.

Stuart Bennett, CalPERS senior pension actuary, said CalPERS takes the city’s concerns “very seriously,” but has limited options. CalPERS has to fund pension contracts, and understands “that puts enormous pressure on cities.”

David Teykaerts, CalPERS stakeholder outreach manager, said CalPERS is evaluating the overall needs of the system right now, which is called the asset liability management process. CalPERS and the city need to look at options and work together. The investment market will be challenging for the next 10 years.

This won’t be resolved over night, Fillmer said, but the city needs to talk about it now rather than later.

“Coming up with a $20 million deficit won’t resolve the issue,” she said.

About Stephen Frank

Stephen Frank is the publisher and editor of California Political News and Views. He speaks all over California and appears as a guest on several radio shows each week. He has also served as a guest host on radio talk shows. He is a fulltime political consultant.

Comments

  1. Bogiewheel says

    CalPERS: The new “Weapon of Mass Destruction” for the 21st Century.

  2. Welcome To Bankruptcy Court!

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