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PENSION POUNDING

Pension cost increase will eclipse city salary jumps, 72% more than teacher raises over next 4 years

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POSTED March 10, 2017 12:36 a.m.

Wiggle room in the general fund budgets for the Manteca Unified School District and the City of Manteca will shrink considerably over the next four fiscal years and beyond as two public sector mega-retirement plans impose larger contributions on cities, school districts, and counties as well as the State of California.
The two funds — California Public Employees Retirement System and the California State Teachers Retirement System — are both significantly underfunded. Based on various projections by the fund managers as well as outside financial experts the will run out of money sometime between 2040 and 2046.
And while pension funding shortfalls have been discussed since they started developing in earnest 15 years ago it wasn’t until both retirement funds last year took steps to work toward bridging part of their unfunded liabilities that cities and school districts have been forced to brace for what will be a series of four annual hits that for all practical purposes will increase their average share of retirement costs to roughly 20 cents on the dollar as opposed to today’s 13 cents on the dollar for overall employee pay.
Given school districts spending almost 90 percent of all their general fund on benefits and salaries with cities not far behind at an excess of 80 percent, it puts pressure on other general fund expenditures and will likely slow down creating new positions or even force jobs to be shed to cover the growing pension fund costs.
The State of California is in a similar position.
Both CalPERS and STRS have been hit be the domino effect. STRS was 104 percent funded for its liabilities back in 1998. But then class size reduction hit as part of a benefit enhancement effort to attract more college graduates to public education. That added more teachers to payrolls followed closely by the start of the 2001 recession and then the deeper recession less than 10 years later that caused rates of return on investments to plunge. Eventually staffing was pared back as less revenue flowed into budgets which in return reduced overall pension fund payments from employers.
STRS over a 20-year period consistently met their assumed rate of return on investments. But due to the previously described events, they would need a 10 percent or higher return for the next 30 years on an annual basis to make the pension fund whole.
It is what triggered the decision by the fund’s oversight board to ratchet up the charge for retirement costs per every $1 paid in salary for a teacher to go from 12.58 percent today to 18.13 percent in 2019-2010.
CalPERS has a similar problem but their rate of return on investments lagged even more. That has prompted the rate per covered school employee in CalPERS to go from 13.88 percent today to a projected 21.60 percent in 2019-2020.
Based on projected salaries through 2019-2020, Manteca Unified will be spending $8,050,331 more in 2019-2020 on employee salaries than they are now and $13,825,894 more in pension fund contributions. Had the percentage assessed the district for retirement stayed at 12.58 percent for STRS and 13.88 percent for CalPERS on salaries for the next four years pension costs to the district would have risen by roughly $1 million; instead they are going up $13.8 million.
Most teachers are covered by STRS. They are some, though, invested in CalPERS due to administrative assignments and who then moved back to the classroom.
The City of Manteca is in the same boat but because police and firefighters can receive full retirement benefits after less years of work than other employees, the CalPERS decision to lower its rate of return forcing a higher increase of contributions for public safety employees.
Projected city salaries are going up $3,582,185 by 2020-2021 while pension fund payments will jump by $4,856,121.
Unlike the school district were the Manteca Unified general fund will take the entire hit for increased pension costs, 177 of the 386 municipal employees’ retirement benefit payments will be charged off to enterprise funds where it involves wastewater, solid waste, water, and golf course maintenance workers or special funds such as the Measure M public safety sales tax. Those costs are covered by ratepayers who utilize the services and not taxpayers.
Both the Manteca Unified School District board and the Manteca City Council have to deal with their pension costs going up around 70 percent over the next four years when they put together spending plans.

To contact Dennis Wyatt, email dwyatt@mantecabulletin.com

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