'Draw two lines'

Joe Nation, a professor of public policy at Stanford University, said the city should have examined more than the worst-case scenario.

"It's not that hard to draw two lines [on a graph]," he said.

However, "all the signs were on the table that they should have reduced it then," Young said, noting that all discussions with CalPERS representatives were done over the phone.

"Was it bad info from [Cal]PERS? Maybe," he said. "It's easy enough to look at that after the fact."

In November 2011, firefighters stopped most of their pension contributions. Police officers are scheduled to stop in February 2015 and nonpublic safety workers in February 2013. However, future contributions can still be bargained.

Nation said the city's conservative estimates, particularly with CalPERS rates, are nonetheless a wise way to budget.

"There are some back-of-the-envelope calculations that even CalPERS uses" for contribution rates, he said. "If you miss [the projection], you dig that unfunded liability hole deeper… [or] there's the hopefully approach … let's roll the dice, let's gamble, and let's hope we hit that number."

Earlier this year, CalPERS dropped its return rate to 7.5%, which will affect cities in fiscal 2013-14.

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Unfunded liability

Costa Mesa's unfunded liability — the amount not covered by CalPERS to cover current and future employee pensions — is about $131 million.

When CalPERS' lowered return estimates take effect, "darned if it [won't be] pretty close to my original projection," Young said.

Council critics contend that CalPERS' method of "smoothing" fund gains and losses over decades is a solution to avoid drastic actions.

Norris, the CalPERS spokeswoman, said smoothing allows city contributions to remain predictable and manageable.

The effect of the latest return rate reduction will be "immaterial, a very small increase," she said.

The council majority is uncompromisingly skeptical of CalPERS.

"It's a bunch of puffery," Righeimer said. "We've been making up a number for too many years, and it's going to come home to roost."

mike.reicher@latimes.com; joseph.serna@latimes.com

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