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City of Santa Monica's Unfunded Pension Costs Jump 20 Percent

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By Niki Cervantes
Staff Writer

January 16, 2018 – Unfunded pension liabilities for the City of Santa Monica jumped 20 percent in the last fiscal year, rising from $387 million to $461 million, according to a new report.

The rise is “primarily due to the actual returns on the investment portfolio being less than CalPERS’ (the California Public Employees' Retirement System) projected returns,” said Gigi Decavalles-Hughes, the City’s finance director.

The 20 percent leap in unfunded pension costs is detailed in the City’s newest Comprehensive Annual Financial Report, conducted by independent auditors. It goes to the City’s Audit Subcommittee tonight at a 6 p.m. meeting in the Ken Edwards Center, 1527 4th Street, Room 104.

The report covers the fiscal year that ended June 30.

The looming bill is one of the City’s biggest fiscal headaches. It is paying the debt down over 30 years, and last year stitched together a $45 million one-time payment to CalPERS to bring its liability down.

The extra money brought to $76.3 million the amount City has paid down, a move it said at the time would decrease its unfunded liability by 11 percent.

Decavalles-Hughes, however, said the impact of the extra $45 million won’t show up until the next annual financial report ("City Council Approves Record Payment Toward Santa Monica's Unfunded Employee Pensions," June 15, 2017).

However, she said “the combination of the additional pay down and a better than anticipated experience level resulting from City employees retiring later is contributing to a 1/3 decrease in the projected growth of pension costs over the next 5 years.”

The $461 million in unfunded liabilities represents the gap between the City government’s total employee pension liability of about $1.62 billion and plan assets of about $1.16 billion.

The City’s various pension plans are approximately 72 percent funded, she said.

Santa Monica City has among the highest pension costs per capita in the state ("Santa Monica City’s Pension Debt Ranked Among Highest in California," February 22, 2017).

But all of California’s public sector has been scrambling to deal with gaping holes in pension funding.

Soaring public-pension costs came into the limelight after a 2012 change in accounting practices required U.S. governments to disclose unfunded liabilities on their balance sheets.

Much of the problem stems from generous pension agreements made as early as 1999, when the Stock Market was booming, and kept governments locked when the market crashed and beyond.

Last year, CalPERS lowed its anticipated return from investments to 7 percent, from 7.5 percent. The move shifted more of the cost to governments.

For Santa Monica and others in California’s public sector, the unfunded liability debt comes as many predict a recession and red ink.

Santa Monica’s 2017-2019 biennial budget totals $1.57 billion. But due to an increase in the amount California governments must contribute for employee pensions, the City is projecting an $18 million deficit for 2021-2022 -- $13 million of it tied to pensions ("The Wolf is Here,” Santa Monica City Manager Warns as Budget Woes Mount," May 25, 2017).

In recent years, the City has required employees to chip in more for their pensions and taken cost-cutting steps.


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