City to Continue Evaluating Financial Options for Future

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As it relates to current and future obligations to the state’s pension program, San Marino may not have the prettiest picture, but it is a far cry from the worst.
The city even finds itself with options to possibly stabilize pension funding payments that are projected to increase substantially just within the next decade and the City Council is expected to discuss establishing a committee to assess those options.
At a special meeting Feb. 16, Mary Beth Redding, vice president of actuarial firm Bartel Associates, presented to the City Council the status of San Marino’s California Public Employees Retirement System (CalPERS) accounts and the city’s projected payments. This presentation was accompanied by an evaluation of the city’s non-program revenue streams by Ken Pun, whose firm the Pun Group is contracted to handle the city’s finances.
“We are not in a good position,” Pun said in a follow-up interview, “but we are ahead of the game. We are in control of what we have so far.”
CalPERS invests money committed for pension plans with the goal of generating returns for retirement payouts, but several years of not meeting projected rates of return dating back to the mid-1990s have magnified the liabilities for cities. Essentially, cities are facing having to dramatically increase annual CalPERS contributions in order to fund the retirement plans promised to employees.
“The fact that you have a lot of retirees means that whenever something bad happens, especially an asset loss, it has a larger effect,” Redding said.
According to Redding, investments netted poor returns in 1994, 2001, 2002, 2003, 2008, 2009, 2012, 2015 and 2016. Although poor performances include any returns below 7.5%, many of those years reflected negative returns, with 2009 being the worst with a 24% loss.
The 7.5% baseline is the projected net earnings for each pension portfolio, so any shortfalls create the unfunded liability.
As of the current budget year, San Marino spends $1.2 million annually on the regular payments toward CalPERS plans and another $1.4 million to reduce the unfunded liability.
Given San Marino’s typical annual budget and its cash flow, Pun indicated there were options to consider to make increased payments in future years have less of a sticker shock.
San Marino maintains a sufficient general fund balance to hypothetically run the city’s entire budget for nearly a year in the event all revenue streams ceased, which Pun said is a great position to be in. Pun said he typically recommends that cities have enough reserve funding for three months of operations.
Because San Marino tends to have money left over at the end of a fiscal year, he said it would be a good idea to find ways of putting that toward CalPERS liability funding.
“As a finance director, I highly recommend the city and the council set money aside for stabilization purposes,” Pun said.
Cities pay a percentage of salaries annually for each employee to fund the retirement plans and those percentages are expected to nearly double for the city in the next decade. Employees also pay a varying percentage of their income toward their retirement, depending on the type of pension package they received.
As examples, Pun said the city could invest extra money in some sort of trust that could generate small returns for future use or it could transfer extra money to CalPERS with the intent of crediting future payments.
Following the presentation, the City Council, which met at Crowell Public Library to accommodate the larger audience attendance, voted to discuss creating an ad hoc finance committee to dissect the options and give recommendations.

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