WALNUT CREEK — In just eight years, the annual cost of retirement benefits earned by public employees could more than double, putting a serious crimp in the city’s finances.
According to preliminary estimates by Walnut Creek city staffers, the amount of money needed annually to address pension debt could balloon from $8.2 million — which the city paid in 2016 — to $17.5 million in 2024.
The cost goes even higher four years later when Walnut Creek will need to contribute about $20.4 million from its general fund toward pensions, according to city data.
Walnut Creek isn’t alone. Cities across California are bracing for increased contributions toward employee and retiree pensions resulting, in part, from lower-than-expected returns on investments made by the California Public Employees’ Retirement System, which administers the city’s pension plans for police and non-safety staffers.
As of June 30, 2016, the city’s projected gap between the value of retirements benefits earned by past and current employees, and the money available to fund them is $83 million, according to a staff report.
It was $73.4 million in 2015.
The projected shortfall recently prompted city leaders to reserve $13 million of general fund surplus, and hold off on any decisions about its use.
The unassigned general fund money is allocated by the City Council to address one-time needs like storm drain and facility upgrades, and emergency repairs.
The general fund balance at the end of fiscal year 2016 was $51.5 million, according to the city.
At a Feb. 21 council meeting, Administrative Services director Jeff Mohlenkamp recommended lawmakers wait to decide how to use the surplus until the city gets more information from the CalPERS about any changes to expected investment returns.
The agency uses the returns on investments made with contributions from Walnut Creek and other cities to fund retiree benefits. CalPERS has lowered the average expected investment return, or discount rate, from 7.5 percent to 7 percent, requiring increased contributions from employers to cover unfunded pensions.
A city council workshop will be held April 18 to discuss the pension situation. Lawmakers could consider options such as setting aside surplus funds for paying down the pension liability; finding other revenue such as bonds or a tax increase, and increasing employee contributions to their retirements.
In the meantime, a majority of council members agreed to use about $3.72 million of the surplus funds for three city projects.
A council majority voted Feb. 21 to earmark $2 million to complete the relocation of the city’s corporation yard on Lawrence Way.
Lawmakers also approved up to $1 million in matching funds with the Diablo Regional Arts Association for the Lesher Arts Center plaza renovation project, and up to $727,500 for a mini-park project at Cypress and Main streets.
While acknowledging the city would likely be affected in some way by the pension situation, Councilwoman Loella Haskew said Walnut Creek had time to deal with any adjustments.
“It is money that we are going to have to spend in the future, and we have some additional time to adjust to it, and we shouldn’t panic now just because in five to 10 years (we think) something is going to happen,” Haskew said. “According to some predictions, we would be part of the ocean if that were the case.”
Arguing the city should focus on a policy of using the surplus funds for maintaining existing assets, Mayor Pro Tem Justin Wedel voted for the corporation yard funding but opposed the other expenses.
“There are future adjustments that are going to be coming down the pike, hopefully, and it’s going to have a drastic and adverse impact on Walnut Creek’s ability to even pay for ongoing operating expenses, independent of the other projects in which we’re interested,” Wedel said.
