Santa Cruz looks to long-term liability with $8M public pension payoff

Pensions are bringing down cities, cutting public safety, making roads more dangerous and harming cars.  Yet, Sacramento has been as silent about the pension collapse as national Democrats about the crimes of Hillary Clinton.

“By making the significant pension payment, above and beyond this year’s $16 million payment, the city will reduce its interest payments to California Public Employees Retirement System by about $10.9 million over 25 years, according to city Finance Director Marcus Pimentel. As of this year, Santa Cruz’s unfunded pension obligation is currently valued at $149.9 million.

The state of California made a similar $6 billion plan last year, while the city of Santa Monica put an extra $45 million toward its pension obligations a year ago, Pimentel said.”

Money that could be used for the people paying the taxes is instead being used to keep the doors open of the incompetent—and corrupt—CalPERS.  The next time you see a candidate for Assembly or State Senate, ask them what their plan is to save your city from the clutches of CalPERS.

SACRAMENTO, CA - JULY 21:   A sign stands in front of California Public Employees' Retirement System building July 21, 2009 in Sacramento, California. CalPERS, the state's public employees retirement fund, reported a loss of 23.4%, its largest annual loss. (Photo by Max Whittaker/Getty Images)

Santa Cruz looks to long-term liability with $8M public pension payoff

By Jessica A. York, Santa Cruz Sentinel, 6/10/18

SANTA CRUZ >> Seeking to fend off millions in interest payments in coming years, Santa Cruz city leaders will look this month to prepaying an extra $8 million of the city’s public pension obligations.

The strategy is part of a multipronged approach to keep the city away from the fiscal brink, as the city faces decreasing traditional revenue sources, higher employee and service costs and ballooning deferred infrastructure replacement needs. One such financial strategy recently yielded positive results, as city voters appeared to favor increasing city sales taxes to 9.25 percent in the June 5 primaries, according to preliminary election results.

By making the significant pension payment, above and beyond this year’s $16 million payment, the city will reduce its interest payments to California Public Employees Retirement System by about $10.9 million over 25 years, according to city Finance Director Marcus Pimentel. As of this year, Santa Cruz’s unfunded pension obligation is currently valued at $149.9 million.

The state of California made a similar $6 billion plan last year, while the city of Santa Monica put an extra $45 million toward its pension obligations a year ago, Pimentel said.

Funding for Santa Cruz’s early pension payment would come from the city’s personal investment portfolio, where money is invested in low-yield investments to make a small steady stream of interest-based cash available to the city.

“The trade-off is we’re losing that 1 or 2 percent interest, but we’re gaining on not paying 7.5 percent interest,” Pimentel said of the payment plan. “In this case, we realized that losing 7.5 percent interest a year is not acceptable. The more we can bring that down over time the better.”

The proposed $8 million represents about 10 percent of the city’s overall investment portfolio, Pimentel said.

CalPERS has set a strict June 20 deadline for such prepayments to be calculated in their coming year’s payment schedule, pushing the city to act on an already brewing concept, Pimentel said.

“It’s part of our plan. We planned, always, in ‘19 to start making these extra payments, and we’re going to start paying every year, probably for the next three or four years of extra payments. Maybe not at this size,” Pimentel said. “This first one is kind of a big one to get it moving and then we might see several million a years for the next several years.”

Pimentel told the Santa Cruz City Council during a special budget study session last week that the state’s largest public retirement system is seeing poor investment returns, facing a $318 billion investment shortfall that cities are on the hook to cover — including about an extra $9 million to $11 million due from Santa Cruz over several years.

“The cost of the benefit, they’re going up modestly,” Pimentel said, showing the council a bar graph charting annual projected employee pension costs. “It’s those blue bars, the new cost that we’ve never seen before in a recovery period. When the stock markets are doing well, we’ve not seen increasing costs due to underperformance of investments. That’s new. And they’re dramatic and large and they’re doubling our payments, and it is what it is.”

Meanwhile, the City Council is set to approve the 2018-2019 budget on Tuesday by closing a general fund shortfall and bringing the fund’s spending down to $100.7 million for the coming year.

One way in which the city balanced its unrestricted general fund, funding services such as public safety, parks and recreation, streets, internet technology and more, is with an across-the-board 5 percent spending cutback, plus operational efficiencies and deferred maintenance and equipment replacement, to the tune of a $5.4 million reduction.

Some resulting general fund spending reductions include delaying replacing aging vehicles for the Police and Parks and Recreation departments, eliminating security patrols around City Hall, major reductions to the City Arts program and reductions to community program grants. The Fire Department will look to reduce its overtime costs and the Police Department will reduced its planned building maintenance and move its juvenile diversion efforts to Santa Cruz County authorities.

On Tuesday, the most heavily debated of the proposed budget cuts was a 5 percent reduction to the city’s community grant funding, about a $179,000 in savings.

Several council members and numerous public speakers organized by the 10-program Santa Cruz County nonprofit Community Bridges protested cuts to the so-called Core program’s three-year plan.

By the end of the meeting, city officials were directed to find ways to subsidize part of the community project funding cuts, and will return to the council with alternative proposals to balance the budget by June 30.

The city’s 2018-2019 budget is available in its entirety online at cityofsantacruz.com/government/about-us/city-budget.

 

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.