City’s retirement burden tallied
It was almost 11 p.m. Tuesday, nearly five hours after the start of the Costa Mesa City Council meeting, when the discussion turned to a touchy subject: pension obligations.
That’s when the “big boogeyman” of a number, as the city’s Pension Oversight Committee Chairman Jeff Arthur called it, was announced: $228 million in unfunded pension liabilities.
It’s the most current estimated shortfall between what City Hall will owe its retiring employees and what funds are available to pay that contractual obligation, according to Arthur.
When the clock struck midnight, the City Council approved some initial steps toward addressing the foreboding figure.
The steps include a prepayment of roughly $6 million this July to the California Public Employees’ Retirement System pension fund, or CalPERS. The move would take advantage of a CalPERS incentive for prepayment and save the city about $226,000 this year. It was approved by the four remaining council members. Councilman Gary Monahan left the meeting early.
For Mayor Jim Righeimer, the theory behind everything is good, but the step isn’t nearly enough to solve the problem. He compared the scenario to “rearranging the deck chairs” on a sinking Titanic.
“This is not in any way, shape or form a fix to the pension problem,” Righeimer told the Daily Pilot after the meeting. “The $226,000 savings is noise compared to the $228 million that we owe.”
Pension committee member John Stephens was more optimistic.
“There is a lot of darkness, but this is a little flicker of light,” he told the council.
The Pension Oversight Committee — made up of six finance professionals, two attorneys and one engineer — began meeting last May to study and address the city’s pension concerns. In January, the panel approved recommendations, which were presented to the council Tuesday.
Arthur, a retired finance professional and CalPERS recipient, said the city has “limited options” to address the problem. Costa Mesa’s unfunded pension liability has grown exponentially, he said, from an estimated $9 million in 2002 to $228 million in 2012.
Of that $228 million, the police officers’ pensions are unfunded by $83 million, the firefighters by $61 million, and the municipal employees by $84 million.
The unfunded figure shot up, according to the committee, partially because of CalPERS’s bad investment returns, increases in pension benefits and growth in salaries and cost-of-living adjustments.
In 2002, Costa Mesa paid 9.8% of its general fund to pensions, though by 2013, that percentage climbed to 14%, Arthur said.
By fiscal year 2022-23, it could be as high as 21.7%, he estimated.
“The trend is pretty daunting,” Arthur said. “There isn’t anyone who’s gonna get out unscathed on this.”
Potential solutions, according to the committee, include issuing a bond to pay off the pension liability, raising sales or property taxes, selling city assets such as parks, and increasing payments to CalPERS after reducing city services.
On Tuesday, Righeimer surmised that although Costa Mesa isn’t as bad off as other cities when it comes to pension burdens, a multifaceted effort from cities, employee unions and Sacramento is needed to fix the problem. And, he added, those entities may face additional political pressures if more cities declare bankruptcy.
Stanford University professor Joe Nation last year told the council that it would take new sales or parcel taxes to meet the city’s pension obligations.
The scope of the problem is so large, the former state assemblyman said, that a yearly parcel tax of $370 per residential household for some 20 years would “address most, if not all, of the shortfall.”
