Novato’s creation of a trust fund to manage its pension contributions could prove helpful, but it’s not the kind of cost-cutting reform that’s going to lift taxpayers out of a swirl of rising payments and predictable pressure to raise local taxes or reduce public services.
The City Council has decided to create a trust fund with a private investment management firm to help it manage its pension contributions. The hope is the firm’s success in managing those funds will generate investment returns that can help the city defray the cost to taxpayers.
The city already is using a similar strategy for money set aside to cover employee and retiree medical insurance coverage.
It could be a financially advantageous move.
Novato, just like every city and public agency that is part of the California Public Employees’ Retirement System, is facing rising annual costs for employee pensions. The city — or taxpayers — face an estimated $47 million tab in unfunded liabilities.
The city’s annual general fund budget is about $40 million.
Between this year and 2023-24, the city’s contribution to CalPERS is expected to increase by 64 percent.
That means the $4.5 million the city contributes yearly to CalPERS to cover its pensions is expected to rise to $7.3 million.
For example, the local sales tax voters approved in 2015 generates about $2 million per year. That was a tax voters approved to preserve police protection and other city services.
The projected increase translates into ongoing pressure to raise taxes and fees, reduce public services and programs and cut back on City Hall’s payroll.
At one time, cities didn’t sweat their pension bills. CalPERS investments were regularly generating double-digit returns, typically covering a large part of each agency’s expense.
But that was before the recession, and CalPERS’ returns weren’t covering the projected long-term costs. In addition, CalPERS reduced its rosy estimated returns to 7 percent, which some critics maintain is still too optimistic.
Reducing that estimated return translated into increasing the contributions from member agencies, including Novato.
In addition, CalPERS leadership has stressed that it is not the one that negotiates pay and pension benefits; each member agency is responsible for the ramifications of those local decisions.
Cities have looked to Sacramento for an answer, a remedy that would apply statewide rather than creating hiring and retention problems for municipalities that do take significant steps to rein in their pension costs.
But pension costs have continued to rise, even after the state Legislature approved much of then-Gov. Jerry Brown’s reforms. It was a first step, but lawmakers have refused to take another.
Gov. Gavin Newsom has hardly mentioned pensions. Labor opposition to significant reforms has been fierce and parts of Brown’s reforms are still tied up in legal fights launched by public workers’ unions.
Workers should be treated fairly and professionally; their pensions are part of that equation. But the rising cost to taxpayers has to be addressed, not shrugged off as politically too hot to handle, both locally and statewide.
Novato’s move to hire a private investment firm to help it manage its pension bill may help, but it is a far cry from a solution to a fiscal challenge that promises to grow worse in the coming years.
