Santa Monica City Council Approves $45 Million Payment on the City’s Pension Liability
June 14, 2017
SANTA MONICA, Calif. – At last night’s City Council meeting on June 13, 2017, the Santa Monica City Council voted to make a substantial contribution of $45 million towards the City’s unfunded pension liability. This one-time payment continues the City’s fiscally responsible practice of making pay downs to the California Public Employees Retirement System (CalPERS), accelerating the paying down of the City’s unfunded liability, currently at $386,760,127. The retirement cost savings to the City from this payment will be at least $3.8 million per year.
This payment is part of steps the City has consistently taken to mitigate increases in its pension costs using a combination of pay downs of its unfunded liability, employee cost-sharing, and prepayments that result in discounted costs. To date, Council has approved prior one-time payments totaling $31.3 million. This brings that total to $76.3 million.
The City’s fiscal policy requires minimum payments of $1 million in the General Fund and a commensurate amount in all other funds. The policy also provides for additional payments if funds are available. As the fiscal year nears its end, Council voted to allocate $35,080,812 in General Fund reserves and $8,639,607 in other operating funds’ reserves to increase this year’s annual payment from $1,279,581 to $45,000,000. This payment will bring the total unfunded liability paydown through June 30, 2017 to $76.3 million and decrease the unfunded liability amount by an additional 11%.
The greatest challenge to Santa Monica’s long-term fiscal sustainability is the long-term unfunded pension obligations for city staff under CalPERS. The recent prudent decision by CalPERS to lower rate of return assumptions on its investment portfolio is anticipated to increase the City’s employer contribution rates by 50% within five years, an increase that makes up $13 million of the General Fund’s projected $19 million shortfall in FY 2021-22. This sizable paydown is a conscientious action that helps Santa Monica prepare for and mitigate the projected shortfall in five years.
Pension costs make up approximately 7% of the City’s overall budget and 10% of the operating budget, and to a large extent are outside staff’s direct control.