Rising pension costs in San Luis Obispo are creating projected budget shortfalls that could result in cuts to city services like water, parking, transit and sewer services.
Or they could mean asking employees to contribute more into their retirement funds to help pay down costs.
To help the looming crisis, the city is looking for additional ways it can reduce its budget costs, though it already has allocated $2.74 million to help pay down expenses since 2014 and has limited hiring to personnel positions deemed “essential to city operations.”
The city is facing a budget gap that is projected to grow to $8.9 million in three years due to escalating costs to support its pension fund.
As a result, city leaders are looking at cutting $7.5 million from the general fund and about $1.4 million from funds that include water, wastewater, transit and parking.
The city previously projected a $5 million gap by 2021-22, but additional information provided by the California Public Employees’ Retirement System, which manages the retirement investments for state government agencies, caused the city to reassess its outlook and adjust for a higher shortfall amount.
We want to hear from members of the public about how they think we should best address these fiscal challenges.
Derek Johnson, San Luis Obispo assistant city manager
Exactly how these cuts might be implemented and how they would affect the public are the focus of a public meeting planned for Oct. 5 to seek residents’ ideas on the challenge and answer questions. It will be held from 6 to 8 p.m. at the Ludwick Center.
“We want to hear from members of the public about how they think we should best address these fiscal challenges,” Assistant City Manager Derek Johnson said in an interview with The Tribune. Johnson officially moves into his new post as city manager on Friday after Katie Lichtig’s last day on Thursday.
In a statement he added: “Because we are legally required to meet the CalPERS costs, we must find ways to offset those increases. By acting now, before the gap reaches its fullest state, we can be more strategic in adjusting our budget.”
A variety of factors have contributed to the increased costs — the Great Recession, retirees living longer, fewer employees paying into the fund, and more conservative investment assumptions.
CalPERS announced in December that it would lower its expected average rate of return on pension investments from 7.5 percent to 7 percent over a three-year period.
As a way to address the shortfall, the city may pursue “cross-department efficiencies, or begin to charge for some city services that are currently free or reduced, and discuss potential changes in compensation with our valued employees.”
In the 2000s, the city had about 1.7 workers for every retiree, but now that ratio is about 0.6 worker to retiree, Johnson said.
21 percent (employees’ collective share of city pension obligations)
San Luis Obispo employees contribute about 21 percent of the city’s share of its pension obligations. That percentage conceivably could go up if the city is able to negotiation with unions to increase the amount.
Johnson added the pension issue is one facing cities across the state, not just San Luis Obispo.
“By taking proactive measures in recent years, we’ve improved the city’s fiscal forecast and are better off for it,” Johnson said.
Eventually, the city will consider adopting a Fiscal Health Response Plan in April 2018 to be applied to its 2018-19 supplemental budget to be adopted in June 2018.
Clarification: This story has been edited to reflect that budget cuts would likely cause reductions in city spending for funds related to water, parking, transit and sewer services, but not necessarily higher costs for residents for those services.