Pension debt a thorny issue for city

Council weighs paying now to avert higher costs later for retirees

Mountain View's motto for 2017 might as well be "more money, more problems."

Diving into the city's annual budget last week, Mountain View's elected leaders took a magnifying glass to a $128 million plan for coming fiscal year. To sum it up: the city has never had such a fat wallet, but it faces a growing list of expenses, as well as some hard choices.

Much of the time at last week's initial round of budget talks was spent on one particularly big expense -- the city's mounting CalPERS liability. As of June, the city's total liability to the state pension fund valued at $194 million, and that cost is only expected to grow in the coming years. CalPERS officials have indicated they will be gradually requiring cities and other public agencies to pay more in the coming years.

"It's very frustrating -- it seems like regardless of what we do, the costs continue to go up," said City Manager Dan Rich. "It's hard, but it's our job to figure out what to do with this."

The good news is that Mountain View has already set aside about 72 percent of that liability, roughly $139 million. At the meeting, city staff presented a variety of plans to chip in about $12 million more to raise that funded portion closer to 80 percent. The more money the city pays now, the more it would save in the long run, city staff said.

But where could the city find an extra $12 million? That question dominated the meeting as City Council members looked for convenient funding sources that would still leave their favorite projects untouched.

Under a plan put forward by the city's finance team, Mountain View would draw about half that amount ($6 million) from its reserve fund, a pool of money normally set aside for emergencies. But by doing so, they warned, the city would need to tweak its longstanding policy to keep at least 25 percent of its general fund in reserves, which could threaten the city's AAA bond rating. That isn't very likely, said Finance Director Patty Kong. She assured the council that bond-rating agencies would probably look favorably on the "positive action" the city took to pay off its pension costs.

Still, some council members said they were nervous about touching the city's $26 million in emergency savings for something that was hardly an emergency. Councilwoman Margaret Abe-Koga suggested pulling money from the city's other funds to keep its reserves intact.

"I'm concerned with touching the general fund reserve -- it's always been 25 percent and we haven't touched it, even though during the Great Recession we were tempted to," she said. "We're here now based on that policy and it's important to keep it moving forward."

Instead, Abe-Koga suggested taking money from other sources, such as funding for a city child-care center and accounts set up for Mountain View to quickly buy land for affordable housing projects and open-space.

But most other council members didn't have any qualms with using the reserve money. Mayor Ken Rosenserg called it "lazy dollars" that could fetch a much higher return if they were invested elsewhere. Meanwhile, Councilman John McAlister balked at the idea of defunding other city projects to pay off the CalPERS cost early.

The city earns a meager 1 percent interest on its savings, but CalPERS funding is estimated to fetch about 7 percent. Based on that difference, Councilman Lenny Siegel proposed trying to go further, perhaps throwing in more reserves to fund CalPERS up to 90 percent.

"This is a question of why keep money in my checking account rather than keep it in my savings?" he said. "This is an investment; the money isn't going away ... It's just another reserve."

A thin majority of the City Council gave consent to have city staff start making plans to draw the money from the reserve fund.

The proposed city budget calls for adding about 24 full-time positions, mostly for the city's Community Development and Public Works departments. More than half of those positions are limited-period positions, not intended to be permanent.

In addition, city officials said they will likely increase utility fees on local residents. City staffers are proposing a 7 percent increase in water rates, stemming from a significant reduction in water usage brought on by the drought. City officials and other agencies have been encouraging households to reduce their water use in recent drought years, which means the city is losing money from selling less water. A 10 percent increase is also planned for the city's sewer service, which staff members said is due to infrastructure costs. Garbage service is also expect to rise by 10 percent due to higher maintenance costs.

The city is just at the beginning of the multistage budget process, which will be finished up by June.


285 people like this
Posted by Farm Logic
a resident of Old Mountain View
on May 7, 2017 at 7:11 am

City employees Rich and Kong are like foxes who have taken up residence in the hen house. City Attorney Quinn, Fire Chief Diaz and Police Chief Bosel and all the other city employees bringing in $200,000+ salaries are no better. They are picking off the chickens one by one and when they are all gone they will expect the taxpayers to keep up a steady supply of chickens. These unfunded pensions are the heist of the century

103 people like this
Posted by Scott
a resident of Monta Loma
on May 7, 2017 at 12:55 pm

Local governments only getter bigger and more costly. Most government pensions are even more under-funded. No wonder the City wants to bring in more and more development and money - regardless of the impact on current residents.

25 people like this
Posted by Outrageous
a resident of Old Mountain View
on May 7, 2017 at 1:13 pm

The Boomer generation that will be the major recipient of this grossly over-promised pension is, by far, the most selfish and damaging cohort to have ever graced the state of California. They enacted Prop 13 to keep their taxes low while building a generation of community-subsidized equity without paying anywhere near their fair share. Now their outrageous pensions are coming due, clearly over-promised from the beginning with no one thinking twice about it. And you want to strip us of much needed community programs like our already starving affordable housing?

Abe-Koga is perfectly happy to further bankrupt the future to pay for the sins of the past. To that I say, Hell No. Let CalPERS go bankrupt, and scale down the benefits to something far more reasonable. The future of our communities cannot handle another crippling blow to shore up this generation of takers.

Like this comment
Posted by PERS recipient
a resident of Blossom Valley
on May 7, 2017 at 1:39 pm

PERS will never go bankrupt since most of its retirees are state workers and the state will guarantee paymets. It's city and county workers who should be concerned. If city or county governments go bankrupt PERS will adjust the retirement benefits and tell the cities they have to contribute more money to stay afloat.

106 people like this
Posted by Outrageous
a resident of Old Mountain View
on May 7, 2017 at 9:01 pm

"state will guarantee paymets"

With what money?

14 people like this
Posted by Otto Maddox
a resident of Monta Loma
on May 8, 2017 at 4:07 pm

The state will not guarantee payments. Where do you get your facts?

Here's a crazy thought.. fund your obligations at 100% now.

Or maybe I'll just pay 80% of my mortgage.. that's all I'm comfortable paying right now.

The deficit spending is what will kill this country.

Like this comment
Posted by Mark Roulo
a resident of Slater
on May 9, 2017 at 9:16 am

"...funding for a city child-care center and accounts set up for Mountain View to quickly buy land for affordable housing projects and open-space."

Maybe Mountain View doesn't have the money to purchase these things if the pension funding is below where it should be?

And 7% is crazy optimistic for CalPERS. For cities that try to exit the fund (e.g. Villa Park), CalPERS uses about 3% as the safe expected return.

2 people like this
Posted by Robyn
a resident of another community
on May 9, 2017 at 3:03 pm

I agree with Otto, fund the pensions. Then examine current salaries and benefits. Sunnyvale pensions are underfunded and they gave City executives (themselves)below market rate interest loans for 45 years. It is costing each resident in lost opportunities. Yet, the City is raising garbage and sewer fees over $12.00 per month per home.
Constantly operating at a deficit is a sure way to bankruptcy. The pie in the sky estimated 7% return on investments is misguided. When was the last time that was achieved?

2 people like this
Posted by True
a resident of Blossom Valley
on May 10, 2017 at 5:39 pm

Guess the source of the following quote:

"All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service, It has its distinct and insurmountable limitations when applied to public personnel management.

The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations," using Google...especially you Google haters...

1 person likes this
Posted by Resident
a resident of Old Mountain View
on May 11, 2017 at 11:25 am

I know who said that, but both parties are so different today than they were back then, that you can't really compare Democrats of that era with those of today.

Pensions hardly exist in private industry anymore, simply because private businesses can not tax others, they must compete for money, and the cost of pensions made their products uncompetitive with companies who did not offer them. Defined benefit plans are also completely unsustainable (and unfair), so the private sector has moved to defined-contribution retirement plans, which can't have this kind of financial reckoning due to underfunding.

Overpriced pensions have only remained in government because the government has the power to take money by force from everyone else. Pension liabilities are growing exponentially far faster than revenues and it won't take that long to reach a level where even a 100% income tax won't pay those liabilities. So, the outcome is simple - after a lot of public screaming to the contrary, the state will default on the pensions, there is no other possible outcome. If you're the recipient of a public pension, make contingency plans.

2 people like this
Posted by the_punnisher
a resident of North Whisman
on May 11, 2017 at 3:15 pm

the_punnisher is a registered user.

Sigh. The big problem in a socialistic State is when you run out of other peoples money.
This problem always happens throughout history; we even have a word from the early 20th Century that sums it up TANSTAAFL: THERE AIN'T NO SUCH THING AS A FREE LUNCH! No, Heinlein didn't create the expression, like a good writer, he " borrowed " the word, he filed off the serial numbers and reused the word. Are people ready to start lynching government employees yet? That is what usually happens when OPM runs out.

3 people like this
Posted by Old timer
a resident of Another Mountain View Neighborhood
on May 12, 2017 at 4:30 pm

There will be rainy days!
Then you wished you saved away some money.
Reminds me of year 2000.

6 people like this
Posted by Financial Acumen?
a resident of Cuernavaca
on May 12, 2017 at 4:54 pm

This shows a lack of financial understanding on Council. A 7% return? You're buying that? You'd sweep incremental $ out of reserves because of that "promise"? Rosenberg should know better...doesn't he do family investments with Morgan Stanley?

The reason the pension obligations are increasing is precisely because the funds HAVE NOT been averaging a 7% return. Maybe someone can dig up the annual returns the past bunch of years...I believe it was below 1% last year? (could be wrong).

Sure, move a bit from other funds if $ can be found. And maybe a bit from reserves (for an element of diversification). But don't largely deplete the reserve (without a plan to get back to 25%) in search of winning the lottery. If the full pension amount is needed before being fully funding, then that would qualify as an emergency that could pull from reserves.

By the way, I applaud the city for being as close as it is. In the meantime, don't make decisions that increase the liability (like spiking salaries).

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