Retirement costs are eating 11.6 cents of every general fund dollar spent by the City of Manteca.
That compares to 7.7 cents of every general fund dollar spent in 2010.
Overall city pensions (including workers for non-general fund functions such as wastewater, solid waste, and water) plus health care costs for 250 retired city workers are expected to increase by more than 20 percent or $2.1 million to $12,905,783 in 2020.
The numbers were laid out for the Manteca City Council during an adjourned meeting Tuesday that covered the status of ongoing pension costs that are slamming cities throughout California as well as the state government.
The city’s unfunded pension liabilities now stand at $145.4 million even though Manteca municipal employees pay more toward their retirement than any other city in the California Public Employees Retirement System (CalPERS). Bargaining groups agreed to do so when the Great Recession slammed the city in order to save municipal jobs as tax revenue plummeted.
Manteca has been taking steps in recent years to blunt the impact of rising pension costs. The strategies include placing new hires into a pension program that requires larger employee contributions and requiring them to work more years to obtain full retirement benefits. Manteca was among the first cities to make such a move.
The city has been “picking low hanging fruit” as Finance Director Jeri Tejeda noted by paying off small shortfalls attached to specific retirement programs.
The council Tuesday directed staff to pay the unfunded liability connected with retirement for police and firefighters hired after Jan. 1, 2013 whose retirement plans are under provisions of the California Public Employees’ Pension Reform Act (PEPRA) as well as police officers covered under Tier 2 of the California Public Employees Retirement System
The unfunded liability is $59,059. By paying it prior to the end of the month, the city will avoid paying $20,000 of interest if it were amortized over 30 years as PEPRA allows.
The previous council in January 2018 approved a similar move that saved $85,500 in interest by paying off $110,000 that was unfunded at the time
The money to pay off the “low hanging fruit” will come from the pension stabilization fund established last year. There is $2 million set aside to assure the city has funds when opportunities come along to avoid future interest or pay down outstanding liability. The reserve is also designed to provide a cushion in a future economic slowdown to allow the city to continue making pension payments with minimal impact on municipal services.
At the same time the city at the end of the fiscal year will take what money was budgeted for employees’ pension cost payments but wasn’t spent when positions go vacant for a period time when a worker resigns or retires and their replacement hasn’t been hired. Last year that extra contribution to CalPERS came to $300,000.
Of the eight various retirement fund obligations, the only one that is unfunded is health care benefits for the 250 retired city employees. That means the city is “paying as you go” to the tune of $1.3 million a year.
The pension costs for the bulk of city employees are funded between 65.4 and 67.5 percent, an overall improvement of about 2 percent from last year thanks to better CalPERS returns on investments.
The cost to the city will continue to increase as CalPERS is lowering their projected rate of return on investments as shifting more costs to employers. Prior to this year CalPERS based pension rates on a 7.7 percent return on investments. It dropped to 7.375 percent this year and will drop to 7.25 percent in 2020 and 7 percent in 2021.
How pension funds
got into their current
financial condition
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 this year.
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.
CalPERS has since switched to more conservative investments with smaller but more stable returns to avoid the wild fluctuations that sent CalPERS into a tailspin when it comes to their ability to cover pension liabilities for 1.4 million individuals employed by various government agencies.
To contact Dennis Wyatt, email dwyatt@mantecabulletin.com
