City Council faces sobering reality as employee retirement costs shoot through the roof
Most of the Chico City Council’s recent conversations about money have gone something like this: The city has recovered modestly from the Great Recession and is slowly building back its reserves—but almost certainly is headed toward more financial hardship.
The problem is pensions. Basically, city officials have no idea how to keep up with the skyrocketing cost of providing benefits for retired employees. The city’s CalPERS obligations this fiscal year total $6.5 million, and that’s projected to jump to nearly $10 million by 2022-23. Another measure is “unfunded liability”—the cost if all retirement-eligible city employees retired today. Chico would be on the hook for nearly $120 million.
The council had yet to face the issue head-on prior to its meeting on Tuesday (Aug. 1). The discussion was held at Vice Mayor Reanette Fillmer’s request.
The city has contracted with CalPERS to provide employees’ pensions since 1964. But in recent years, the CalPERS fund hasn’t grown fast enough to keep pace with California’s rising number of public employees, higher salaries and more generous pension benefits. As a result, more of the burden is shifting to local governments, which has the potential to severely impact city services, City Manager Mark Orme told the council.
“It’s becoming pensions versus services,” he said. “But this is not a Chico-specific issue—this is a statewide issue. This is something we’re all going to have to face.”
Mayor Sean Morgan compared looming retirement costs to the city’s “transient problem” because it’s impacting all of California and potential solutions are limited at the local level.
Under CalPERS regulations, the city cannot cap participation, provide benefits to some employee groups and not others, or afford to opt out of the system entirely. Leaving CalPERS is an arduous, 15-month process, explained Jamie Cannon, the city’s human resources manager. It also requires paying the city’s unfunded liability in a lump sum, as well as exorbitant termination fees, which together total an estimated $175 million.
“It’s like Hotel California,” Fillmer said. “Once you go in, you can never go out.”
Additionally, ditching CalPERS would be unpopular with the city’s rank and file, particularly Public Works employees who haven’t had a raise in more than eight years. Solid retirement benefits make their jobs worth the relatively low pay, said employee Jason Anderson.
“CalPERS is a truly powerful tool for recruiting and retaining [workers],” he said. “Without it, we will be unable to attract the high-caliber employees Chico needs. I know a lot of men and women I work with would have already left for higher-paying jobs if we didn’t have the security of retirement.”
With no silver bullet in sight, members of the council asked Orme what to do next.
“The first step was gaining some financial stability, and that started 5 1/2 years ago,” he said. “We are building reserves, but, obviously, those reserves will be depleted quickly because we don’t have enough to accommodate the PERS costs as they project out. So, we need to continue to look at efficiency within the organization, areas where we can cut costs.
“That’s all I can do at this point.”
The council directed City Attorney Vince Ewing to research how other public agencies are grappling with rising pension obligations and report back at a future meeting. He warned that some agencies throughout the state have recently attempted to leave CalPERS but failed to find cost-effective alternatives.
“They are back in the Hotel California, so to speak,” he said.
The council also worked through several other items on a packed agenda, including:
• Voting 5-2 in closed session to renew Orme’s contract, which now includes a deferred compensation match of up to $9,000. Councilmen Ory and Randall Stone dissented.
• Voting 5-2 to officially enter a waste-hauling franchise agreement with Recology and Waste Management, effective in October (see “Trash and cash,” Newslines, June 8). Councilmen Karl Ory and Mark Sorensen cast the nay votes.
• Finalizing the reorganization of the Community Development Department, which oversees building and housing, following the recent departure of Director Mark Wolfe. At an annual salary of $132,730, building official Leo DePaola was officially appointed to Wolfe’s former post, and longtime Principal Planner Brendan Vieg was promoted to a new position as deputy director of Community Development ($120,470).
The appointments were confirmed by a 5-to-2 vote, with Ory and Stone dissenting. Ory explained to the CN&R that he opposed hiring without an external job search—not the hires themselves.
“It’s not good government practice,” he said. “Generally, jobs should be competed for.”