⚠️ Aviso de traducción: Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
Findings 13 findings
F1
Page 39
Each City’s CAFR for the fiscal years ending June 30, 2015, June 30, 2016 and June 30, 2017 reported covered payroll for the City’s pension plans in the amount set forth beside its name for that year in Appendix A.
F2
Page 39
Each City’s CAFR for the fiscal years ending June 30, 2015, June 30, 2016 and June 30, 2017 reported contribution payments to CalPERS on the City’s pension plans in the amount set forth beside its name for that year in Appendix A.
F3
Page 39
Each City’s CAFR for the fiscal years ending June 30, 2015, June 30, 2016 and June 30, 2017 reported Unfunded Liabilities (as defined in this report) for the City’s pension plans in the amount set forth beside its name for that year in Appendix A. Each City has been required to make large Amortization Cost (as defined in this report) payments of principal and interest to CalPERS on those Unfunded Liabilities. These payments have diverted money that could otherwise have been used to provide public services or to add to reserves. Interviews by Grand Jury. Glover, Mark, California sets a new record for lowest unemployment rate, The Sacramento Bee, January 19, 2018, <www.sacbee.com/news/business/article/195571634.html>. See footnote 125 above. Redwood City notes that the current expansion phase of the economy has now lasted for eight years, and that, historically, expansionary cycles only last an average of five years. It cautions that the economy is in a “late stage of expansion” and that prudent long-term budgeting requires the city to “proactively prepare for future recessionary impacts that loom in the future.” Redwood City, Report - FY 2017-18 Mid-Year Budget Study Session, p. 11.
F4
Page 40
Each City’s CAFR for the fiscal years ending June 30, 2015, June 30, 2016 and June 30, 2017 reported Funded Percentages (as defined in this report) for the City’s pension plans in the amount set forth beside its name for that year in Appendix A.
F5
Page 40
Each City’s CAFR for the fiscal years ending June 30, 2015, June 30, 2016 and June 30, 2017 reported what the Unfunded Liabilities (as defined in this report) for the City’s pension plans would have been if the applicable Discount Rate applied to calculate them had been 1 percentage point lower in the amount set forth beside its name for that year in Appendix A.
F6
Page 40
Each City’s CAFR for the fiscal years ending June 30, 2015, June 30, 2016 and June 30, 2017 reported general fund total expenditures for that year in the amount set forth beside its name for that year in Appendix A.
F7
Page 40
In each of the fiscal years ending June 30, 2015, June 30, 2016 and June 30, 2017, each City’s contribution payments to CalPERS on the City’s pension plans represented the percentage of that City’s general fund total expenditures for that year set forth beside its name for that year in Appendix A in the column entitled “Contribution Payments as % of General Fund Total Expenditures.”
F8
Page 40
In each of the fiscal years ending June 30, 2015, June 30, 2016 and June 30, 2017, each City’s contribution payments to CalPERS on the City’s pension plans represented the percentage of that City’s covered payroll for the City’s pension plans in the amount set forth beside its name for that year in Appendix A in the column entitled “Contribution Rate (i.e., Contribution Payments as % of Covered Payroll).”
F9
Page 40
In FY 2017-2018, each City (excluding Atherton, Colma, Foster City, Hillsborough, Portola Valley and Woodside) has paid CalPERS for its Normal Costs (as defined in this report) and Amortization Costs (as defined in this report) in the amounts set forth beside its name on Table No. 4. (The Cities of Atherton, Colma, Foster City, Hillsborough, Portola Valley and Woodside are not included in Table No. 4 because the source for that table did not included data for them.)
F10
Page 40
As a result, among other things, of CalPERS’ decreasing its Discount Rate from 7.5 percent to 7 percent by FY 2020-2021, its reduction of future Amortization Periods from 30 to 20 years, and its use of updated mortality assumptions reflecting projected increases in the longevity of Members, each City faces increasing pension contribution payments to CalPERS which are likely to more than double by FY 2024-2025.
F11
Page 40
Principal and interest payments on each City’s Unfunded Liabilities will increasingly impair such City’s provision of public services, impair the security of employee salary and pension Benefits, and/or result in proposals for revenue increases. Paying down Unfunded Liabilities early results in large savings. Every City in the county would save substantial money by paying down their Unfunded Liabilities early.
F12
Page 40
The financial documents for each City reviewed by the Grand Jury show that no City has adopted a long-term financial plan with at least a 10-year time horizon to address rising Normal Costs and Amortization Costs that includes each of the following: objectives, such as achieving a target Funded Percentage, eliminating the Unfunded Liabilities over “n” years or maintaining the cities’ share of Normal Costs below “n” percentage of payroll, policies to achieve these objectives, such as making supplemental payments to CalPERS to reduce their Unfunded Liability, keeping salary increases below the actuarially assumed increase rate, capping the cities’ share of Normal Costs, reducing operational costs or increasing revenue, measures to implement such policies, processes to monitor progress in implementing the measures, and alternative financial strategies, or a “Plan B,” that may be used in the event that CalPERS’ assumptions are not met in future years.
F13
Page 41
Despite the fact that rising pension costs and Unfunded Liabilities are a significant problem for each City, no City (except for Redwood City, the City of San Mateo, the City of Burlingame, the City of Belmont and the City of Menlo Park) includes specific, annual projections of future pension contribution costs in their budgets published in the finance section of their websites.
Recommendations 4
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R1Page 41The Grand Jury recommends that, by December 31, 2018, each City schedule public hearings to engage its residents in addressing the city’s increasing pension costs and to develop a long-term plan to address them.
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R2Page 41The Grand Jury recommends that, by December 31, 2018, and annually thereafter, each City publish a report on its website detailing its pension obligations. The report should include, at a minimum, the following: a) The City’s total pension contribution costs under all plans, and also broken out into subtotals for all Miscellaneous Plans, and all Safety Plans, for each of the 3 preceding fiscal years as well as estimates for such costs in each of the following 10 fiscal years, assuming CalPERS’ actuarial assumptions are met. b) The City’s total Unfunded Liabilities under all plans, and also broken out into subtotals for all Miscellaneous Plans, and all Safety Plans, for each of the 3 preceding fiscal years as well as estimates for such Unfunded Liabilities in each of the next 10 fiscal years, assuming CalPERS’ actuarial assumptions are met. c) The City’s Funded Percentage across all plans, and also broken out into subtotals for all Miscellaneous Plans, and all Safety Plans, for each of the 3 preceding fiscal years as well as estimates for such Funded Percentages in each of the next 10 fiscal years, assuming CalPERS’ actuarial assumptions are met. d) The percentage of the City’s general fund expenditures and covered payroll represented by the pension costs described in (a) above (using estimates of general fund expenditures in future fiscal years). e) In addition, estimated information for all projections regarding the next 10 fiscal years set forth in items (a) through (e) above should be presented using a Discount Rate that is 1 percentage point below CalPERS’ then-current Discount Rate.
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R3Page 42The Grand Jury does not recommend specific policies or implementation measures to address pension costs. However, it recommends that, by no later than December 31, 2018, and annually thereafter, each City instruct its staff to deliver a report to the City Council in connection with the City’s financial plan evaluating available options to address pension costs and that each City hold public hearings to discuss and consider such options no less than every other fiscal year. These include (but may not be limited to): Regular supplemental payments to CalPERS (beyond those required by CalPERS) to accelerate the amortization of their Unfunded Liabilities. Irregular supplemental payments to CalPERS (beyond those required by CalPERS), as when a City has a budget surplus or receives special non-recurring revenues. Electing to apply shorter Amortization Periods (that is, less than 20 years) to their Unfunded Liabilities. Issuing pension obligation bonds. Establishing substantial reserves that can be applied in the future to help meet rising pension costs and/or accelerate amortization of Unfunded Liabilities. Establishing Section 115 trusts for the exclusive purposes of meeting rising pension costs and/or accelerating amortization of Unfunded Liabilities. Reductions in general fund operating costs other than pensions. Seeking additional general fund revenues that can be applied directly to paying pension costs or that can offset general fund budget shortfalls that would otherwise occur. Keeping employee salary increases at or below the levels assumed by CalPERS. Negotiating cost-sharing agreements with employees under which employees pay a portion of the City’s pension costs (without at the same time agreeing to offsetting compensation increases). Maintaining growth in employee salaries and COLAs at or below the assumed CalPERS rates. To the extent allowed by law, consider the recommendation of the League of California Cities to renegotiate employee contracts to bring the pension Benefits of Classic Members in line with PEPRA Members, for future work. In particular, ensure that the salary used to determine final retirement compensation is based on the average of the final 3 years of employment (rather than highest 1 year), and that the salary is not enhanced by “spiking,” such as by including overtime, unused vacation or sick leave, purchases of “air time,” and the like.
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R4Page 43The Grand Jury recommends that, by June 30, 2019, each City develop and publish a long-term financial plan to deal with rising pension costs, and update that plan annually. Such a plan should include: Specific objectives, such as identifying a target Funded Percentage, eliminating the Unfunded Liabilities over “n” years and maintaining the City’s share of Normal Costs at “n” percentage of payroll. Policies to achieve these objectives. Specific measures to implement the policies. A process to monitor progress in implementing the measures and in achieving the objectives. Consideration of alternative policies and measures, or a “Plan B,” that may be used in the event that CalPERS’s actuarial assumptions, especially the Discount Rate, are not met in future years.
Conclusions 1
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CL1 Page 38Most of the Cities do not yet appear to have adopted a long-term financial plan to address their rising pension costs. They have not adopted target Funded Percentages for their plans, dates for achieving them, or plans for monitoring progress against their targets. Thus far, they have not made it a priority to provide clear, regular and public disclosure to their residents of their future projected pension costs and Unfunded Liabilities, nor the cuts in services that they will make, or 184 Since 1980, when participation in defined benefits plans was at its peak in the United States, 30.1 million people participated in defined benefit plans. That number has dropped by 40 percent over the past 30 years. Money-Zine, Defined Benefit versus Contribution Plans, July 5, 2017, p. 2, . 185 Nation, Pension Math 2011, p. 3, footnote 11. 186 Interviews by Grand Jury. 187 Interviews by Grand Jury. 188 Keene, James, Palo Alto City Manager, Letter to Tamara L. Davis. 2017-2018 San Mateo County Civil Grand Jury 35 increases in revenues they will seek, in response to rapidly increasing pension costs. Where projected pension costs are disclosed, they are often based on CalPERS projections for returns on investment that some experts argue are optimistic, and residents are not apprised of the potential for far greater costs should another recession occur, or other CalPERS assumptions prove inaccurate. The steps necessary to address the pension crisis are unpleasant to think about, much less implement. Indeed, some of the Cities have advised the Grand Jury that, while important, amortization of Unfunded Liabilities must be balanced against “other priorities” for new spending.189 While the Grand Jury understands the desire on the part of the Cities to expand city services in these times of economic growth and increasing property tax revenues, it is difficult to think of a more important issue for the Cities to focus on than the looming pension crisis. Currently, the county enjoys good economic conditions. Its unemployment rate recently dropped to 2.1 percent.190 Many of the Cities are experiencing rising revenues.191 If the Cities do not address Unfunded Liabilities in a decisive way now, when will they ever be able to? The next recession may well reduce CalPERS’ Returns on Investment below their projected level, resulting in even larger Unfunded Liabilities and higher pension costs. The next recession may also reduce or eliminate the Cities’ budget surpluses, making it harder for them to cope.192 Now is the time for the Cities to engage their residents in the issue and, with the residents’ support, take the difficult actions necessary to secure a bright future for their communities.
No Responses Found 1
Government entities assigned to respond to this report. No response documents have been linked in our database.
County of San Mateo
Agency