City to Hire Consultant to Advise on Paying Down Pension Debt

By Jorge Casuso

June 29, 2018 -- Facing a $461 million bill for unfunded pensions, the City of Santa is seeking to hire a consultant to analyze options to pay down and manage the looming debt.

The contract would be for one year with two one-year options for renewal, according to a Request for Proposal (RFP) issued last week.

The chosen firm would provide "an independent analysis of strategies" and present the scenarios to City officials and "potentially members of the public," according to the RFP.

"The successful proposer will provide a detailed, comprehensive, and understandable summary of what is involved in each option (cost, benefit, tradeoffs, risks) supported by rigorous and thorough analysis," the RFP said.

Issued June 20, the RFP comes less than two months after an outside audit committee found the City's employee costs are higher than for other Southern California cities ("Outside Audit of Employee Pay at Santa Monica City Hall Heads to Council," May 7, 2018).

The audit by Moss Adams was prompted by criticism of municipal employee pay and benefits, as well as by the rising costs of pensions facing governments across the state.

Santa Monica's total pension costs are expected to climb by almost 75 percent by the 2024-2025 fiscal year, according one report ("Pension Costs to Climb Almost 75 Percent at Santa Monica City Hall, Think Tank Estimates," January 29, 2018).

The City, which is paying down the debt over 30 years, has made a total of $77 million in advance payments on its pension obligations since the 2010-11 fiscal year.

That included a $45 million payment last year ("City Council Approves Record Payment Toward Santa Monica's Unfunded Employee Pensions," June 15, 2017).

In February, two members of a compensation advisory committee composed of residents issued a “2030 Challenge” urging City officials to more aggressively address the pension debt ("Member of Santa Monica Audit Advisory Group Urges City to Pay Down $461 Million in Unfunded Pensions by 2030," February 28 2018).

The "challenge" called for the City to retire the $461 million debt for unfunded employee pensions in the next dozen years, imposing across-the-board freezes on salaries and/or hiring to pay for the move.

According to the RFP, the consultant’s analysis "shall include, but does not need to be limited to, up to 30 years of forecasted annual contribution costs and unfunded liability status" under various scenarios.

Among the options the RFP asks consultants to study is a shorter amortization period and additional discretionary payments "at various levels, and for various plans" for police and fire personnel.

Another option to be studied is the use of a Section 115 trust fund, which would segregates funds from general assets to be only used for paying down the pension debt.

Proposals are due July 16 with staff's recommendation scheduled to go before the City Council August 14.