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Manteca general fund has no debt
City, however, looking at ways to handle growing pension costs
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Manteca’s elected leaders over the years have steered clear of any decision that would encumber the general fund with long-term debt.
The reason was simple. Every dollar spent on debt meant one less dollar that could be spent on day-to-day services such as police, fire, parks, streets, and general government.
The city is, however, spending roughly 15 percent of its general fund on pension costs and other post-employment benefits. Based on municipal data gleaned by Merritt Research, larger cities typically have a median 22.4 percent of their overall general fund going to cover “legacy costs” — debt service, pensions, and other post-employment benefits. That’s roughly 50 percent more than what Manteca pays toward legacy costs.
That said the city is trying to get a handle on ballooning pension costs. Based on a mid-year budget presentation to the council in February, pension payments for the City of Manteca’s municipal workforce are projected to go up $13.6 million through 2025 eclipsing projected salary increases by 81 percent.
The increase in city payments to the California Public Employment Retirement System fund is expected to go from $11.6 million to $25.2 million in 2025. To give you an idea of the magnitude of that 117 percent increase in CalPERS payment, the 2025 city bill is $13.7 million shy of the entire general fund budget of $38.9 million that is in place to run the city during the current fiscal year.
Mayor Steve DeBrum has pushed hard for the city to put more emphasis on the impact the unfunded PERS liability will have on Manteca. In past years it has been given just a passing mention in budget reviews and municipal budget workshops. It is among the directives that the council has given City Manager Tim Ogden to tackle.
Ogden said staff expects to present strategies to the council in November on ways they can better manage the impacts of rising pension costs.
“The council took steps a few years back that most other cities haven’t taken yet,” Ogden noted.
Those steps include adding more years until an employee is eligible to be fully invested in retirement by the creation of a two-tier system with new hires having to work longer before the can retire. The other is to have employees contribute a larger share of their retirement benefits.
“I’m one of the second tier employees,” Ogden, who started early this year as city manager, said of new hires that will have to work longer before they can retire.
“There is no other city in San Joaquin or Stanislaus counties where employees contribute as much as City of Manteca employees due (to PERS),” Ogden noted.
The ballooning cost of pensions can be attributed to a number of factors. Ogden noted among them are the fact retired workers are living longer. The CalPERS board has injected politics into the investment process of funds they are entrusted with by restricting what stocks — and countries — the money can be invested. Some examples are tobacco and gun stocks that have had significantly higher returns than the overall market on a consistent basis.
Ogden noted there are structural issues within CalPERS plans that also may have to be examined such as automatic cost of living increases (COLAs).
The city manager said the possibility exists that a large number of retirees ultimately could receive more a year in retirement than they did when they were working as COLAs compound.
In February staff said Manteca may be fine for the next two fiscal years they warned that may not be the case but farther down the road with impacts being projected out to 2025.
The $13.6 million jump over the next eight years may just be the tipped of the ice berg.
Manteca’s unfunded CalPERS liability is expected to go from $89.4 million to $95 million.
Retirement is just one of the cost factors that contributed to employee benefits constituting 26 percent of the general fund budget. The city faces increasing health care costs for existing and retired municipal workers.
Post-employment benefits for workers already returned are coming in at $1 million in 2016, up $50,000 from in 2015. The costs are primarily attributed to negotiated retirement healthcare plans.
Overall 75 percent of the general fund budget or $28.9 million goes to salaries and benefits.
The 2016-2017 payroll for all city employees — including sewer, water, golf, and solid waste employees working in those enterprise fund municipal divisions that are supported by users fees and not taxes — came to $32.7 million and CalPERS payments to $11.6 million. The payroll is projected to reach $40.2 million in 2025 while the CalPERS payments will hit $25.2 million.
Enterprise funds — such as wastewater, water, and solid waste — have an annual debt service payment of $6,095,585. Among the biggest debts are two wastewater treatment plant expansion bonds that have $37.5 million remaining and a bond that paid for the city’s share of the South County surface water treatment plant that has $31.4 million still owed.
The pension costs for the city workers that run the water, solid waste and wastewater treatment systems are covered by monthly users’ fees paid by residential and business customers.