Expert: City needs new taxes to cover pensions
It would take new sales or parcel taxes for the city of Costa Mesa to meet its long-term pension obligations, a Stanford University professor told the City Council on Tuesday night.
Joe Nation said the scenario surrounding the difference between the amounts promised to retirees versus projected available funding to meet those commitments to the California Public Employees’ Retirement System (CalPERS) is “stark.”
Nation, a Democrat speaking before four of the five Republicans on the council, said his bleak assessment was about math and numbers, not “beating up anybody.”
After running through a two-hour presentation replete with data and graphics, Nation said a likely solution to solve the problem would be finding additional revenue. That’s code for “taxes,” Mayor Pro Tem Steve Mensinger responded.
Nation said a quarter-cent sales tax increase for Costa Mesa would raise $5.5 million annually and would close less than one-third of the gap in a 6% investment return scenario.
Nation also wrote in his presentation that a parcel tax of $370 per residential household each year for nearly 20 years would “address most, if not all, of the shortfall.”
He called that particular solution “uncommon, but not unheard of.”
Oakland homeowners, he said, pay an average of $1,200 a year toward city employee pensions.
“Here’s the worst part: They’re in worse shape than you are,” Nation said.
One of Nation’s graphics showed Costa Mesa’s reported fund ratio for its pensions, as of June 2011, as less than 65% — the lowest ratio when compared to Anaheim, Fullerton, Huntington Beach, Newport Beach, Orange and Santa Ana.
Nation, who represented Marin and Sonoma counties in the state Assembly for six years, called CalPERS an inherently political organization whose 13 board members face a conflict of interest because most of them are current or former CalPERS employees.
CalPERS’ board president, by trade, is a window glazer for a school district, Nation said, adding that a recently proposed bill could add more independent voices to CalPERS’ board.
Nation said CalPERS is “kind of gambling on the market,” with a lofty hope of a 7.5% return on its investments.
“CalPERS is not the only one out there doing this,” he added. “Because if you look at virtually every public pension system across this country, they’re also making about the 7.5% [assumption] … I think that [CalPERS] people have said that if we run short, we can always ask the state for more money, we can always ask the employees for a little more, we can always ask taxpayers for more, we can always find some way out.”
Councilwoman Sandy Genis asked whether Nation’s numbers reflected the significant cuts in the city’s workforce. She also mentioned recent talks of outsourcing city services.
Reducing staff, as Costa Mesa has done, will somewhat decrease the city’s liabilities, Nation said, but not by “as much you might expect” because the pension obligations will remain.
Mayor Jim Righeimer said Wednesday that the session was “an eye-opener to the council and the public of what kind of financial pressures — not just our cities, but for all cities in California — there are with this unsustainable pension model.”
Righeimer said the city is paying $19 million annually toward pensions, or roughly 20% of its budget. He quoted Nation’s estimate that just to break even with the unfunded liability for a single year, the city would have to allocate another $18 million.
“That’s a lot of money,” Righeimer said, adding that Costa Mesa’s problems aren’t unique, but are part of a larger statewide issue.
At the outset of the meeting, Councilwoman Wendy Leece said she would have liked to have seen a CalPERS representative such as its senior actuary, Kerry Worgan, at the meeting.
He could have balanced out Nation’s presentation, she said.
“I wanted him to be here also and had asked for that,” Leece said, adding that “his context to the whole dialogue of the perplexing pension problem” would’ve been beneficial.
Cities must collaborate to find a solution to the problem, she said.
Nation was paid $7,000 for his work, according to city documents approved by the council Feb. 19. The council also approved a $3,000 payment for Nation on Feb. 5, for a total of $10,000 paid to him.
City CEO Tom Hatch replied that Worgan was invited, but wasn’t able to attend. A copy of Worgan’s presentation given to the Assn. of California Cities-Orange County is on the city’s pension information page, Hatch said.