Salinas grappling with increasing CalPERS costs

The League of California Cities released a report earlier this year that says pension costs for government retirees will “dramatically increase to unsustainable levels” soon.

The issue involves the pension fund known as CalPERS, or the California Public Employees’ Retirement System, which is the largest pension fund in the nation.

Cities use that fund to pay out retirement benefits to government workers.

The LCC report found that cities will soon have to pay more than 50 percent more toward CalPERS over the next seven years.

CalPERS lost 23 percent of its value, billion of dollars, as a result of the 2008 financial crisis.

Since obligations to retired and retiring government workers still need to be met, the state is pushing the burden onto cities to keep the pension fund solvent.

The CalPERS investment earnings rate decreased by half a percent from 7.5 to 7. That means cities have to cover the difference.

Salinas needs to gradually shell out about $14 million more in payments to the fund over the next seven years.

“This current fiscal year, we’re going to pay about $18.8 million as an obligation right up front to CalPERS,” said Salinas City Manager Ray Corpuz. “That’s our obligation for making our payment to help the fund keep solvent.”

CalPERS costs now hold the third largest budget obligation in the city, overtaking the public works department for the first time ever.

“Those are all the streets, roads, maintenance issues, taking care of landscape, all that you want in your quality of life,” said Corpuz. “So that’s amazing that the annual payment is now larger than some of our basic core services.”

At the rate things are going, if CalPERS were its own city department, it would soon overtake the fire department as the city’s second largest budget payout. The fire department receives about $22 million from the city budget.

By the end of seven years, Salinas will be paying over $30 million annually into CalPERS.

The city has a plan to counter the rate increases. This includes paying as much of the annual CalPERS obligation as much as they can to cut down on interest payments. Officials also plan to use a special trust fund that can earn the city a greater return on their investment options.

Corpuz also says they are taking a look into how they can make city services more cost efficient, so that the city can save money.

One last option they have been discussing is to make government employees contribute more out of pocket.

“We are starting the discussion, it’s a painful discussion now because people aren’t used to giving more than what’s required under state. So if they have to give more, it’s going to be a difficult choice,” said Corpuz. “But the choice is don’t you want to be able to retire and receive your retirement check? We want the fund solvent.”

The LCC says CalPERS has only 68 percent of the funds needed to pay outstanding retirement benefits statewide.