The biggest budget challenge facing Manteca — and virtually every other government agency in California — is rising pension costs.
The proposed municipal budget for the fiscal year starting July 1 represents a 3.4 percent increase in projected general fund operating revenue to $40.1 million. That is in line with increases anticipated in salary and current benefits for employees that account for 76 percent of general fund expenditures.
Compare that to payments to the California Public Employees Retirement System (CalPERS) expected to go from $4,666,091 in 2018 to $5,656,920 in 2019 to cover general fund costs for a 21 percent increase. That’s more than a six-fold increase in CalPERS costs versus increased general fund revenue. That means 11.6 cents of every dollar the city collects for the general fund will go toward helping to cover retirement costs.
The jump is bigger for non-general fund employees such as wastewater, water, and solid waste, golf course, and Measure M public safety positions. That cost is expected to jump 23 percent going from $4,393,317 in 2018 to $5,422,250 in 2019. CalPERS increases could put pressure on the city to increase sewer, water, and garbage rates down the road.
The impact of rising pension costs are among the budget highlights the City Council will review during a budget workshop set for 6 p.m. tonight at the Civic Center, 1001 W. Center St.
During a December council meeting when strategies were discussed to reduce long-term pension liability, staff indicated Manteca has a $112.2 million shortfall in unfunded accrued liability (UAL). It represents the amount of retirement owed to employees in future years that exceeds the current CalPERS assets. It is up from $89 million from 2016 when the CalPERS discount rate — what the pension system expects to earn on their investments — was lowered from 7.5 percent to 7.375 percent. Starting in 2019, the expected rate of return will be lowered again on an annual basis until it reaches 7 percent in 2021. That will increase Manteca’s unfunded liability by 40 percent to roughly $156 million based on current staffing.
To put the current $112.2 million pension liability into perspective, the combined expenditures in the current fiscal year between enterprise funds (wastewater, water, solid waste, and fold course) and the general fund that have employee costs is $81.3 million.
The reason for the increase in city liability is simple. The less CalPERS expects to earn on investments the more local jurisdictions such as Manteca as well as the state will have to contribute to cover pensions.
How pension funds
got into their current
A decade ago CalPERS was “super funded” at 106 percent of its outstanding pension liability. The investment returns went from 13.2 percent in 2013 up to a peak of 18.4 percent in 2014 and plummeted to 2.4 percent in 2015 and bottomed out at 0.60 percent in 2016 before rebounding to 11.2 percent in 2017.
A combination of factors sent CalPERS into a tailspin.
*There were multiple years when investments paid significantly less that was projected.
*CalPERS failed to respond quickly enough to investment losses made worse by a rolling 30-year amortization and asset smoothing.
*There are more retirees that are living longer.
*Agencies adopted enhanced benefit employees that used all future and prior service without charging the increased cost to employees.
The city is already several steps ahead of most agencies in the state. They have changed the benefit formulas where new hires have to work longer to earn full benefits. All employees pay 100 percent of the employee contribution as opposed to many other agencies that allow employees to pay less than the level set by CalPERS. In addition employee groups are playing part of the employer contribution as well.
The proposed overall city budget for the fiscal year starting July 1 is $142,666,727 when all enterprise funds, special funds, and capital improvement projects are taken into account.
Manteca expects to have a cash balance on hand of $166,445,395 when the current fiscal year ends on June 30.
To contact Dennis Wyatt, email firstname.lastname@example.org