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Santa Monica City’s Pension Debt Ranked Among Highest in California
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By Niki Cervantes
Staff Writer

February 22, 2017 -- As it scrambles to avert the red ink of a predicted recession, the City of Santa Monica ranks among the highest in California in some employee pension cost indicators, according to a Stanford University research institute study.

Employee pension obligations for the City reached a total of more than $2.6 billion in 2015, according to the university’s Institute for Economic Policy Research, a think-tank that analyzes public pensions throughout California.

The data showed the City’s pension plans had assets worth $1,160,707,532 in 2015, leaving it with a shortfall of between $1,474,333,894 and $1,565,550,491, depending on the assumptions and methods used in calculations.

Those numbers, posted on California Pension Tracker's website, place Santa Monica near the top of several “highest debt” measures in 2015, the most recent year included, as well as in previous years.

For instance, the City ranked 9th out of 509 California cities for the $15,816 per-capita cost of debt for City employee pensions, and 12th for the per-household cost, $30,192.

Those two rankings used “market value” calculations, or the current market cost of paying off the debt.

While Santa Monica officials have acknowledged that the costs of employee pensions are starting to catch up with the city, the pension data need to be placed in context, the City'd Public Information Officer Constance Farrell told the Lookout Wednesday.

"An accurate view of our city’s scope and size comes from revenues," Farrell wrote in an email to The Lookout, "and when you look at the percent of pension debt as a percent of revenues, we rank 188, and we rank 215 for debt as a percent of operating expenditures (in Pension Tracker data)."

In addition, Farrell said, Santa Monica's residential population, which the U.S. Census currently estimates at 93,640, is that of a small to mid-sized City, but its daily population swells to 250,000 when workers and visitors are included.

As a result, "per capita numbers do not always offer accurate comparisons," Farrell said. "It’s also important to note that we are a full service city, as compared to several other cities (water utility, RRR, etc.)."

City finance officials use an "actuarial" method that spreads the cost of debt across many years. This method can reduce the overall liability reported year to year and produces total costs usually reported as significantly smaller compared to the market basis.

Based on information from the City's Finance Department, Santa Monica has a total of about $1.5 billion in pension costs, of which $387 million is unfunded, Farrell said.

Using actuarial calculations still placed Santa Monica’s pension debt among the highest in the state, based on Pension Tracker's calculations.

The City ranked 13th highest in debt per household using that accounting measure, or $8,460, and it ranked 10th highest debt per capita, or $4,343.

In a January 13 post to his City blog, “The Long View,” City Manager Rick Cole said pension debt is “one area of real vulnerability” for Santa Monica.

The City of Santa Monica says it “recognized” a $45 million pension expense in the 2015-2016 fiscal year, which was eight percent of the city’s operating and capital budget for that year.

It has been allocating extra money in its budget over the last five years for CalPERS contributions to pay down its unfunded obligations. The total so far is $31.4 million, Cole said.

Santa Monica’s portion of its pension obligations is 75.01 percent funded, he said.

In her email to The Lookout, Farrell said the City is taking steps to address its unfunded pension liability.

"Along with state-mandated pension reform, Santa Monica has taken preemptive cost saving measures to mitigate pension cost increases," she said.

City employees currently pay 25 percent of pension costs, while public safety personnel pension contributions will continue to increase under the collective bargaining agreements, Farrell said.

Pension Tracker found the City had 2,168 active employees in the pension system in 2015, an increase of slightly less than six percent since 2008.

By contrast, retirees now total 1,639, a 27 percent increase from 2008, the year that Pension Tracker data begins.

Recent revelations that Santa Monica pays some of the highest salaries among public employees in California, along with large benefit packages, has refocused attention on the issue of pension costs ("Santa Monica Municipal Budget Among Highest Per Capita in California," November 15, 2016).

Santa Monica neighborhood organizations, watchdog groups and the other activists who form the core of City Hall’s critics say too much is spent on the employees themselves, while community needs -- creating more affordable housing and parkland, for instance -- go wanting for lack of funds.

The often-bitter debate over employee costs comes as the City is forecasting a budget deficit in the coming fiscal year, according to a recent report from the City's Finance Department ("Forecast Predicts Slowing in Santa Monica Economy," January 26, 2017).

Overall, total public pension debt in California was $969.5 billion in 2015, or $75,111 per household, under market basis calculations, Pension Tracker said. Using the actuarial method, the debt was $228.2 billion, or $17,675 per household.

Cities, counties, the state and others in the California public sector have been bracing for another jump in pension costs since a December decision by the California Public Employees' Retirement System (CalPERS) to lower its expected rate of return on investments from 7.5 percent to 7 percent by 2020.

The $300 billion fund is now 68 percent funded and recently found itself in the red by about $5 billion.

California’s local governments and public entities will be expected to fill the monetary gap, or “unfunded obligations.”


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