An increase in city contributions to employee retirement costs that will start in 2013 could end up with minimal net impact on Manteca’s municipal budget.

It also means the chances of municipal employees getting an increase in compensation is highly unlikely in the upcoming 2012-13 fiscal year budget

That’s because new contracts with the city’s bargaining groups direct increased revenue in property and sales taxes to go first to cover any additional retirement costs for city employees enrolled in the California Public Employees Retirement System (PERS).

Contract language calls for half of any net annual increase after that of over one percent in combined property and sales taxes to be split among the employee bargaining groups to determine how they’d like it applied to compensation - salary or benefits - within their units.

The city expects a modest increase in sales tax in the 2012-13 fiscal year while the county assessor has informed Manteca to expect a 2 percent drop in property taxes. The loss in property tax would translate to about $40,000.

Manteca is taking in roughly $16 million a year between property and sales tax. A one percent jump would represent about $160,000.

Barring a major surge in economic activity in the next six months, city workers won’t likely be getting a compensation increase in the 2013-14 fiscal year. Sales tax typically takes six or nine months after it is collected by the state to be paid to local jurisdictions.

The contract language was aimed at stabilizing the general fund to eliminate the city’s structured deficit. At the same time it increased job stability for city workers by helping to partially insure the city can handle retirement cost increases as they occur. Pension payments are a major part of the municipal budget. Getting retirement and health costs under control is an essential key to keeping Manteca’s municipal budget on even keel.

The CalPERS board last week lowered the estimated return on investments for 2013 from 7.75 percent to 7.5 percent.

City Manager Karen McLaughlin noted that it was a smaller drop to the investment return rate than an original projection that it would go down to 7.25 percent.

Due to the variances in employee group contracts, the city has yet to determine exactly what the CalPERS change will cost the city. It is expected to be between 2 and 3 percent of the retirement cost for public safety employees and 1 to 2 percent for other municipal workers.

McLaughlin noted the CalPERS move was something that had to be done to make sure the pension system is kept viable. Statewide, the quarter of a percent change means local governments will contribute $300 million more a year into the retirement system starting in 2013.

City staff is hoping sales tax will increase enough to offset projected losses in property taxes plus the increase in pension contributions.

Besides the pension change, the biggest concern for the fiscal year 2012-13 that starts July 1 is how to cover $1.4 million of salary and benefit expenses for 20 municipal workers currently charged off to the redevelopment agency. With the demise of the RDA, that funding goes away June 30.