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Grand jury calls on cities to be more transparent with pension costs

 

On the heels of a 2018 San Mateo County Civil Grand Jury report on "soaring" pension costs, the grand jury has released a new report calling on cities to include more information on pensions on their websites and in annual budgets.

In the latest report on pensions, released Monday, July 29, the grand jury recommends local cities publish pension cost projections covering a period of at least 10 years alongside a 10-year general fund financial forecast. That way, residents can compare rising pension costs against their city's overall financial situation, according to the report.

San Mateo County's cities offer their employees pension plans through CalPERS, the state's public employee retirement system, according to the grand jury. Pensions are funded through a set of sources: employer contributions, which make up about 26% of pension money and come from cities, and by extension, taxpayers; employee contributions, which make up about 13% of pension money, in some cases; and CalPERS.

The bulk of pension money, about 61%, comes from CalPERS' returns on its investments. The agency invests employer and employee contributions, and operates with a series of assumptions about how much it will earn back every year, plus considerations like expected inflation, salary growth, and pension recipient longevity. When the agency's assumptions are wrong, however, the burden falls on cities to pay for the difference, which is considered an unfunded pension liability. Unfunded pension liability is particularly hard on cities because they have to pay "amortization" costs on it, which is the principal of the amount plus interest accrued at high rates over long periods. Interest is generally set at the same percentage of CalPERS' assumed return on investment, and repayment has generally been set over a 30-year period.

In June 2018, the grand jury released the report: "Soaring City Pension Costs -- Time for Hard Choices," which outlined financial data on pensions for each city in the county. According to the report, cities already spend the majority of their pension dollars – about 60% – on amortization costs, of which a major part is interest, in addition to regular annual pension costs (though this breakdown varies widely in the county). In the 2017-18 fiscal year, East Palo Alto paid a low of 38% of its total contribution costs for amortization, while Half Moon Bay paid a high of 79%. Menlo Park fell somewhere on the lower side among cities in the county, spending about 51% on amortization costs.

While the latest report determined that projected pension cost information can be found on the websites of almost all of the 20 cities in the county, only a few include that information in their annual budgets.

"People who may be interested in these data are forced to hunt for them through manual searches of those cities' numerous online city council meeting agenda packages looking for references to pensions," according to a grand jury press release.

While almost half of the cities now release 10-year rather than five-year financial forecasts (some of these cities started generating 10-year forecasts this year), a minority of these cities still do not include these forecasts in their annual budgets, according to the report.

Some cities with five-year financial forecasts also do not include them in their annual budgets. The grand jury recommends that cities include these forecasts in their annual budgets so people don't have to search through council meeting agendas for the information.

Atherton, Menlo Park, Portola Valley and Woodside

The latest report lauded some cities for their work to increase transparency or reduce long-term pension contribution costs while scolding others for not being open about pension costs.

In The Almanac's coverage area, Woodside extended its general fund forecast period from five years to 10 years for the first time in its fiscal year 2019-21 budget, according to the grand jury.

The grand jury commended Menlo Park for making, or having specific plans to make, additional pension contribution payments to CalPERS beyond their annual required contributions, which reduces the city's long-term pension contribution costs.

Neither Atherton nor Portola Valley has published, on their public websites or in agenda packets for City Council meetings, reports showing the annual dollar amount of their projected pension contribution costs for the next five or more years, the report notes. Woodside and Menlo Park have published such reports, according to the grand jury.

The most recent report is available here.

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Comments

3 people like this
Posted by Jon Castor
a resident of Woodside: Woodside Heights
on Aug 1, 2019 at 12:34 pm

Jon Castor is a registered user.

This is a growing financial and people issue for many cities, our state, and many other states... that doesn't get looked at as carefully as it should be. More transparency will help.


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