Escondido Mayor Sam Abed pointed to the numbers Wednesday as he talked about the city’s unfunded pension liability during a workshop on the looming financial crisis.
“We are facing a $4.5 million deficit next year, $8.3 million the next year,” Abed said. “These are real numbers. They are reality. Twelve million in 2020 and $15.5 million (the year after that).
“If we don’t do anything today, the city needs to come up with $40.3 million (over the next five years) to maintain the city’s services at today’s levels.”
For a couple years now, Abed and the majority of the City Council have said the pension crisis is of paramount importance. Recently, it was the driving force in a controversial decision to outsource the city’s library services to a private company — a way to reduce the number of city employees and the future pensions they will receive. The city has said it will be examining every department, other than police and fire, to see where else savings can be had.
“I will not give up on addressing this issue,” Abed said. “I want to continue to make sure our city will continue to provide basic services.”
City Manager Jeff Epp said after the Tuesday workshop that while little concrete action was taken during the informational workshop, decisions are looming.
“The only theme is we have a huge bill to pay,” Epp said in an email.
The council agreed to begin the process to establish something called a “Section 115 Pension Trust” where the city could safely set aside funds separate from the state’s retirement system in a tax-exempt, irrevocable trust to reduce pension liabilities and stabilize costs.
Epp said it also appears obvious that when one-time money becomes available — such as when a department spends less than was budgeted — some of that cash should be put toward the pension issue.
“The question is, how much? If we use more, we might not have to make as negative a budget assumption or take such a hard-line position with the labor groups. Or, maybe we need to use all the one-time money and go five years with no raises to cover the gap. Or a lot of scenarios in-between.”
He said he and city staff will be bringing suggestions and proposals to the council for action in the months ahead.
The more than 700 city employees are members of the California Public Employees Retirement System (CalPERS), which is a defined benefit pension plan. There are more than 900 former employees now receiving a pension, and they are living longer and therefore collecting benefits longer.
Both CalPERS and numerous financial experts agree that due to funding shortfalls in recent years, plan design changes had to be made. In 2013, California pension reform became law under the Public Employees’ Pension Reform Act, which reduced pension benefits of newly hired employees.
However, savings from the reform will take many years to be realized. Meanwhile, the amount of money the city needs to put into the CalPERS system to address the unfunded liability issue and the pension plan’s future stability for promised benefits is increasing rapidly, in part because of underperforming investments made by the pension plan in past years.
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