A $4.1-million deficit is projected for the next fiscal year, as the number of Glendale city employees retiring with enhanced pension benefits begins to increase, city staff reported earlier this month.
It’s a fluid figure based on a scenario where the city spends 100% of its budget spread out over each its General Fund departments, “which never happens,” Glendale finance director Bob Elliot said in an email.
“This is just a projection, things might change, we might have more income next year,” said Councilman Vrej Agajanian, pointing out that the next fiscal year doesn’t begin until July.
“So I will wait until I face the issue, and then come up with the best solution,” he added.
Still, with the deficit expected to climb significantly over time, reaching $17.5 million during the 2023-24 fiscal year, several council members proposed taking preemptive measures during a meeting earlier this month when the report was presented.
“Like our fire department has an emergency plan, we also need a fiscal emergency plan,” said Councilman Ara Najarian, directing council to come up with a means of either reducing the city’s expenditures or increasing its revenues.
Mayor Zareh Sinanyan raised the possibility of using increased tax revenues from recently passed Measure S to offset the deficit, but the idea was opposed by other council members.
Projected to generate roughly $30 million annually, Measure S funds “have to go to the purpose that we all talked about up here — affordable housing, parks, the services that we need to provide for the public benefit,” Councilman Vartan Gharpetian said.
While most of the city’s General Fund costs are related to salaries, its pension obligations to California Public Employee’s Retirement System, known as CalPERS, are still significant, Elliot said.
Pensions cost the city $31 million between 2017-8, with about $3 million offset by employees’ contributions. General Fund salary expenses for the same time period were $106 million, and $170 million citywide, Elliot said.
It’s a complex issue that dates back to around 1999, when then Gov. Gray Davis signed a law that resulted in more generous pensions for city and state government employees.
At the time, CalPERS was “super funded,” or had more assets than liabilities, buoyed by dot-com financial gains, and it was thought that cities that enacted enhanced pension plans would not bear additional costs, Elliot said.
However, the projections ended up being way off, with the early-2000 dot-com crash and ensuing 2008 recession decimating CalPERS’ worth. Today, CalPERS is about 70% funded, Elliot said.
The result is that Glendale and many other cities are facing growing pension costs expected to peak in 2030-31, he added.
“There are not really more employees retiring, but pension costs for those that have retired, and those that are going to retire with enhanced benefits, are increasing,” Elliot said.
There are mitigating factors, including statewide pension reform passed by Gov. Jerry Brown in 2012 that lowered the benefits of public employees hired on Jan. 1, 2013, and after, Elliot pointed out.
Eight years ago, Glendale changed its pension tier system so employees hired after the enacted reform would still not accrue benefits based on the enhanced formula, Elliot said.
Through deals reached between the city and employee associations, some workers also share some of the costs, he added.
In 2017, Glendale City Council members established a pension stabilization trust, into which it deposited $26.5 million Elliot said will earn interest and offset pension costs in eight to 10 years.
So far, financial officials have been able to present City Council members with a balanced budget annually, although “doing that has been a challenge during the years following the recession,” Elliot said.
“Unless revenues increase enough to match our costs, then we have to look at reducing costs in the General Fund so we maintain a balanced budget,” he added.
While Councilman Agajanian said he didn’t have any specific cuts in mind, he said if or when it comes time to address a deficit, “every expense, every issue, every department should be reviewed.”