PALO ALTO — Supplemental trusts and obligation bonds are among the options the city has to pay down its $296 million unfunded employee pension liability.
The City Council’s Finance Committee on Tuesday received more information about the different options from John Bartel, an actuary with Bartel Associates. The committee then provided more direction to city staff about the options it wants to explore.
Bartel said the city could use an “irrevocable supplemental 115 pension trust” for rate stabilization. And, putting money into a trust also reduces the city’s unfunded liability amount at the same time.
The trust is likely to yield a “much higher” investment return of 5 percent to 7 percent, Bartel said. But, he added that the trust can only be used to pay CalPERS directly or to reimburse the city for CalPERS contributions.
The city anticipates ending the fiscal year with a general fund surplus of $6 million to $8 million. Bartel recommended putting money into a fund as soon as possible to maximize returns.
Bartel also discussed the risk involved with pension obligation bonds, an investment that hinges on good timing and the health of the market.
Still, Councilman Greg Scharff said he wanted more information on the soundness of such bonds.
Scharff said the discussion with Bartel convinced him that investing $100 million to $300 million in pension obligation bonds is “probably the wrong way to go.” But, the councilman said the city should explore investing a smaller amount, about $5 million to $25 million.
Other options Bartel shared with the committee included borrowing from the general fund or using surplus funds for an upfront payment to CalPERS, and requesting a shorter amortization period.
The committee asked Lalo Perez, the city’s director of administrative services and chief financial officer, to return on Dec. 15 with a long-range financial forecast and funding alternatives.
As of 2013, the city owes its police and fire employees $105.25 million and $190.3 million to the rest.
The city’s required contribution to CalPERS for 2015-16 is nearly $30 million, with $9.7 million for police and fire employees and $19.5 million for all other employees.
And, the city now has more retirees than active employees.
In 2013, the city had 184 active police and fire employees and 404 retirees from those departments. That same year, the city had 789 active non-safety employees and 989 retirees in that category.
Email Jacqueline Lee at jlee1@dailynewsgroup.com or call her at 650-391-1334; follow her at twitter.com/jleenews.
