Almanac

News - January 20, 2010

It's wait and see on public pensions

• Meanwhile, a former council member is exploring a local initiative.

by Sean Howell, Dave Boyce and Andrea Gemmet

The cost of pensions to California and its cities, towns and agencies has long been a concern, with prognosticators warning that government agencies would have an increasingly hard time balancing their budgets as pension payments consume a greater portion of the general fund.

City managers in San Mateo and Santa Clara counties have taken note, recently forming groups to address the issue collectively. While each jurisdiction must negotiate its own labor contracts with unions, the groups issued a statement of principle in July, asserting that member cities were "committed" to scaling back pension benefits for new employees.

Menlo Park and Atherton officials acknowledge that the system is not sustainable in the long run, but neither jurisdiction has concrete plans to address the issue. Woodside and Portola Valley officials, meanwhile, say retirement benefits are not a strain on their towns' budgets, partly because they don't have their own police forces or fire departments.

Meanwhile, former Menlo Park councilwoman Lee Duboc is exploring whether there is sufficient local support for an initiative election that would bypass the council and change Menlo Park's pension policies with a vote of the people.

Menlo Park, Atherton

In Menlo Park, skyrocketing pension costs have contributed to what the city characterizes as a structural budget deficit. Those costs have increased 16-fold over the past six years, from $260,000 in the 2003-04 fiscal year to $4.28 million in 2009-10. Assuming no new employee positions and no new raises, those costs are expected to approach $6 million annually in five years.

Pension costs represent 12 percent of the current budget, and are beginning to strain it; the city finished the 2008-09 fiscal year about $500,000 in the red.

Still, the city has a $27 million general fund reserve, and is not seeking to renegotiate pension benefits. It obtained concessions from its middle-management employees in negotiating a two-year contract ratified by the City Council in December, calling for those employees to share pension costs with the city if they increase at a faster-than-expected rate.

"The council's thinking was that, at some point, we want to get (to long-term sustainability), but we want to take care of the direct impacts now," City Manager Glen Rojas said, shortly after the city negotiated a new employee contract that did not scale back retirement benefits. Mr. Rojas has said the city would consider doing so only if it didn't affect its competitiveness in the hiring market.

In other words, Menlo Park might follow suit if surrounding cities or the state make new rules related to retirement benefits, but would not initiate the effort.

"The reality is that the city is in decent shape right now," said Councilman John Boyle at the time. "It's not time to panic."

Atherton is in a similar situation: faced with budget strain, but with no imminent plans to address the pension issue. The town has, however, taken measures to reduce its pension load by holding the line on employees; for example, it contracts with Redwood City for IT services.

"We're not poised to take action, but we're at a point where we recognize the need to get serious about looking at this," said Councilman Jerry Carlson.

Portola Valley, Woodside

Neither Portola Valley nor Woodside is facing trouble in paying for current retirement obligations for public employees, in large part because neither town has embedded fire or police departments. Both towns contract for police services from the San Mateo County Sheriff's Office and are served by the Woodside Fire Protection District.

Safety personnel "are the expensive ticket as far as retirement costs are concerned," Woodside Town Manager Susan George said. "Our financial projections indicate that we can continue to support our current obligations well into the future."

State guidelines allow safety workers to retire at age 50, after 30 years' service, with 90 percent of their highest annual salary for life. It's a formula that many cities in the region have adopted, including Menlo Park and Atherton. With candidates for those jobs scarce, scaling back those benefits could put a serious dent in a city's hiring prospects, according to Ms. Duboc, former Menlo Park council member.

Portola Valley's situation is similar to Woodside's. The town's pension plan "is sustainable, assuming the stock market doesn't fold," Town Manager Angie Howard said.

Though neither Woodside nor Portola Valley is financially strained, both Ms. George and Ms. Howard said their towns would consider scaling back retirement benefits for new employees if it becomes a trend in both counties.

Ballot box

Ms. Duboc is looking into the prospect of launching a ballot initiative aimed at reducing retirement benefits for new Menlo Park employees. Given the lobbying prowess of employee unions and council members' close working relationship with employees, people shouldn't necessarily expect their elected representatives to solve the issue, she said.

Ms. Duboc said she's trying to determine whether there's enough interest among the public to merit launching a campaign.

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