One year after the San Mateo County civil grand jury released a report warning of the threat of increasing pension costs on local government budgets, a new report recommends that cities publish at least 10 years of future pension liabilities in annual reports.
The grand jury emphasized the importance of transparency, noting that residents should be able to easily compare projected pension costs against general fund forecasts to assess their city’s financial stability.
Half Moon Bay City Manager Bob Nisbet said he wasn’t shocked by anything in the report.
“I haven’t heard anywhere in the community that people don’t have access to this information, or they think this is a big concern,” he said.
Though pension costs in Half Moon Bay rose almost 50 percent during the 2017-18 fiscal year, the costs make up about 7 percent of the city’s general fund. The county average is 14.8 percent.
Portola Valley and Woodside are the only cities that spent less on pension costs in 2017-18 than Half Moon Bay.
Nisbet said pension costs, which rose to $881,000 in 2017-18, are a concern, but he said the city can afford the increase and plans to budget for the change. He added that the city saves money by contracting with the San Mateo County Sheriff’s Office for law enforcement, which could partially explain why the city isn’t facing the same budget squeeze other cities face.
Increasing pension costs for cities can be partially attributed to lower projected investment returns by the California Public Employees Retirement System, the public administration organization that manages pension plans for San Mateo County cities. CalPERS invests employee and city contributions and relies on a return on investment for more than half of the benefits it pays out. In 2016, CalPERS lowered its expected return, leaving cities on the hook to pay for the difference.
Last summer, the grand jury found that San Mateo County cities spent $102 million on pension plans in 2016-17, a number that could double by 2024-25.
The grand jury’s 2018 report laid out a number of possibilities to pay down pension costs, including cutting services, reducing employee salaries, laying off employees, negotiating an increase in employee contribution to pension costs, increasing taxes or reallocating money from other areas.
In its most recent report, the grand jury assessed how the county’s 20 cities have managed pension costs and planned for increased costs in the future. It commended Half Moon Bay for its retirement stabilization fund, which Nisbet said the city could draw on if its revenues began to decrease.
“Right now, we’re in the position where we can pay as we go, like any other expense,” he said.
The city has $1.15 million in the fund, enough to pay for 17 months of pension costs.