By Khalida Sarwari
Saratoga City Council members recently voted unanimously to pay off half of the city’s unfunded pension liability, a move that makes Saratoga one of the first cities in the state to take action to secure its future finances.
City officials approved a budget adjustment resolution on Feb. 18 to appropriate funding for a $3.3 million payment toward the city’s share of the California Public Employees’ Retirement System “unfunded accrued liability,” an expenditure that, according to Mayor Howard Miller, represents one of the largest one-time payments in the city’s history.
“I’m super excited that we have the capability and the flexibility financially to do this,” said Miller. “And I’m even more excited that we have a staff and a set of council members that are financially savvy enough to look this problem head-on and say, ‘Let’s solve it as fast as possible; let’s not let it fester and continue to get worse.'”
The council’s decision was based on a CalPERS report released in October that showed a breakdown of the city’s total $37 million accrued liability at June 30, 2013, to include a $30 million funded portion and a $6.9 million unfunded portion that is expected to grow to $7.7 million by June 30, 2015.
“Through discussions with council, a very responsible discussion was made to pay off approximately half of that because CalPERS is charging cities interest at a very high rate for not paying off that liability,” city manager James Lindsay explained.
The city is estimated to benefit from a savings of about $10 million in interest over time by making the $3.3 million payment, according to Lindsay.
The payment covers all of the city’s liability for all employees that were hired prior to 2013. For the city’s current employees looking forward, CalPERS plans to ramp up over five years the city’s portion of those payments to a new higher level that will be sustained for the next 20 or 25 years to recoup all of the money from the current employees, according to Miller.
Prior to taking a 5-0 vote, Councilwoman Mary-Lynne Bernald said that of the four options that the council was presented with, this “is the most fiscally responsible choice,” while Councilwoman Emily Lo said that it’s the city’s “obligation to fund this $7.7 million UAL.” Vice Mayor Manny Cappello agreed that the decision would be putting Saratoga in a better position moving forward.
The largest public pension fund in the U.S., CalPERS serves 1.6 million local and state government employees and is funded by a combination of employer and employee contributions and investment returns.
Link: Council votes to pay half of city’s unfunded pension liability
