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City Manager's Blog

If you have questions or suggestions regarding this blog post, ideas for future blog posts, or any matter of City business, feel free to contact City Manager Tabatha Miller at (707)961-2829.    

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Oct 07

The Rising Cost of Pensions

Posted on October 7, 2018 at 11:35 PM by Mateo Ortiz

September 6, 2018

During my interview with City Council for the City Manager position, I asked what each Councilmember thought were the most pressing issues for the City of Fort Bragg. The answers included maintaining infrastructure, housing, economic development, the Mill Site redevelopment and the rising cost of California Public Employees’ Retirement System (CalPERS), the City employees’ pension program.

CalPERS is the nation’s largest pension fund with over $360 billion dollars in assets and over 1.9 million members from 2,945 employers. The rising cost of pension contributions is not unique to Fort Bragg or the State of California. After losses in 2008 and 2009, most U.S. state pension plans have not recovered to the funded levels seen in the early 2000s. For example, in Arizona, the overall Public Safety Personnel Retirement System (PSPRS) is only 46.6% funded. In comparison, CalPERS overall funding rate is 71%, up from 68% the prior year. That is good news.

The funded status is the value of assets held today divided by the estimated future pension cost. In other words, for every dollar needed to pay CalPERS retirement benefits, there is $.71 cents available to pay it. Fort Bragg’s funds are a little better off. Together the City’s five funds have a funded ratio of 73.7%, so we have almost $.74 cents for every dollar owed. 

CalPERS Chart

Fort Bragg had an unfunded accrued liability (the other $.26 cents) of $8.9 million, as of June 30, 2017 (the most current Actuarial reports from CalPERS). Every year for the next 30 years, the City will pay an amortized portion of that liability. This and a reduced discount rate (expected rate of return), is what is driving the double digit increases in pension costs for the next five years and the reason that Fort Bragg’s pension expense is expected to nearly double from just under $1 million this year to close to $2 million in FY 2024-25.

Similar to a 30-year mortgage or other long-term debt, the best way to cut the cost of debt is to pay it off early. If the City commits to a 15-year amortization, it will save an estimated $3.5 to $4 million dollars. Measure H will ask the City voters in November to approve a 3/8th of a cent sales tax (.375%) which would provide the City funds it can use to pay this debt early. Measure H, if approved, would sunset after 15 years to match that repayment cycle. This is debt the City will have to pay, regardless of the funding source, and the longer we take to pay it off the more it costs.