Finance officials: High pension estimates are subjective
COSTA MESA — The ballooning pension cost estimates that City Council members are using to rationalize their dramatic restructuring and layoffs efforts hinge almost entirely on a single, negotiable premise, according to city finance department officials.
“One probably pretty big assumption is that when [employee contracts] are completed, it is assuming the employees are not going to continue to pay what they pay” now into their pensions, said Bobby Young, a budget and research officer for Costa Mesa.
At a February study session, Young presented a chart that council members often cite that predicts the city’s pension costs going from $15 million now to more than $25 million by 2015. Costa Mesa has a $93-million annual budget for all expenses.
Young’s five-year projection did not include employee contributions once their contribution agreements expired.
The cost to the city could feasibly remain where it is if employees continue to contribute, he said.
“It’s an assumption. It’s subjective, because if employees are requested to, if they come to the table, it would reduce future costs,” Young said. “I didn’t want to assume if the city were to be negotiating anything in the future, to state one way or the other what those negotiations should entail. If the city chose to negotiate in a certain way, I wouldn’t want my projections to guide those negotiations.”
But those projections have quickly steered the direction of the city.
The council recently approved issuing more than 200 layoff notices that could take effect in September, and dissolved the police helicopter program it shares with Newport Beach. Officials are considering laying off more than 20 police officers.
In March, city Chief Executive Tom Hatch hired an interim finance director, communications manager and human resources expert, partly to assist in the layoffs. Officials from Cal
PERS, the state’s public employee pension fund, said City Hall could be basing decisions more on politics than on real math.
“You’d have some people who, because it’s popular right now, blame everything on pensions,” said Ed Fong, a spokesman for CalPERS. “That’s an ideological thing. There are some people who for whatever reason are adamantly opposed to labor unions.”
CalPERS saw its investments suffer significantly because of a downward market and the real estate collapse.
The fund’s losses take two to three years to be felt on the local level, meaning Costa Mesa will only start seeing the effects now, CalPERS officials said.
“If you look at it so simply, OK, it’s the high cost of pensions that’s causing the problem, then why aren’t other cities going through the same problem?” Fong asked. “It is true that pension costs have gone up in recent years because of the recession. It’s gone up for everybody … but not every city is being forced to lay off [nearly] 50% of its workforce.”
Costa Mesa has seen its contributions for firefighter pensions grow from 24.6% of its payroll in 2008 to a 37.4% next fiscal year and to an estimated 38.7% in 2012-13, according to CalPERS records.
Police rates are projected to climb to 38.2% in 2013-14 from 29.3% in 2008. Miscellaneous costs have increased from 12.5% of its payroll in 2008 to an estimated 22.7% in 2013-14, CalPERS data show.
The city also pays much of the employees’ portion, which ranges from 8% to 9% and will increase in the coming budgets.
CalPERS investments have performed better than expected the last two years.
Those gains won’t be seen until at least 2014, experts said.
City leaders say they can’t gamble on the economy recovering or employees’ help, and they have to act now to minimize costs.
Costa Mesa desperately needs to address building and street repairs and other city projects deferred in recent years to plug past budget shortfalls, said Councilman Steve Mensinger.
“We’ve come to the end of the road; we can’t kick the can any longer,” he said.
Costa Mesa’s some 470 employees are already absorbing the increases coming for 2011-12. All three employee associations — fire, police and miscellaneous — signed contracts in October that contribute some of their paycheck to their pensions, adding up to about $3.6 million.
That total could increase over time, further helping absorb the CalPERS increases, Young said.
Costa Mesa would have to renegotiate with firefighters in the fall to keep them contributing past October. Miscellaneous employees stop contributing in two years, police in about 2013.
“Our track record speaks for itself,” said Costa Mesa Police Officer Assn. President Jason Chamness of officers’ willingness to pay part of their pension costs. “When the city asked us to take a furlough, we did. When the city asked for concessions … we gave them the concessions they asked for and that we all agreed upon. We’ll certainly be prepared to negotiate in good faith in 2013.”