The Susanville City Council found itself between a rock and hard place last week when it approved its 2019-2020 $18.3 million budget that included deficit spending of $568,911 (although some insiders say the actual amount of the deficit spending is more like $400,000). While the city has about $5 million cash in reserves, the approval of such deficit budgets obviously cannot be sustained for long. One insider said about half the defict is from CalPERS.
Several councilmembers expressed concerns about the budget during a June 13 budget workshop, but less than a week later, on June 19, by a 4-1 vote (Mayor Kevin Stafford cast the only nay vote), and the council approved the budget with a stipulation by councilmember Brian Wilson that city staff would come up with a road map out of deficit spending by the council’s final meeting in September.
The biggest drain on the city’s budget continues to be its increasing contribution to CalPERS, the state fund that provides benefits for employees and retirees.
A 2018 report by the California Policy Center on CalPERS contributions by city governments highlights the dire situation the city of Susanville faces.
For example, the city of Millbrae (which faces the greatest impact in the state) paid $3.7 million, 59 percent of the amount of its current payroll (this does not include employee contributions via withholding) to CalPERS. By 2024, Millbrae’s contribution to CalPERS will rise to 89 cents for every dollar of current payroll.
In other words, while Millbrae’s payroll is only expected to rise from $6.3 million in 2018 to 7.7 million in 2024 (3 percent per year), its CalPERS contribution will rise from $6.3 million in 2018 to $7.7 million in 2024. Nearly all of that increase is “catch-up” payments on the city’s unfunded liability, and in just six years the city’s payment to CalPERS for unfunded liability will increase by 99 percent from $2.9 million in 2018 to $5.8 million in 2024.
The costs for the city of Susanville are unknown at press time, but Susanville’s Finance Manager Deborah Savage said, “… most of our expenses are coming from our retired members and their beneficiaries.”
So the city of Susanville faces a similar dilemma. It’s true — CalPERS is underfunded, but here’s the real rub. CalPERS funds are invested in the stock market and real estate, but despite an increase in value (the stock market has nearly quadrupled since its low in March 2009), CalPERS remains underfunded.
Even worse, what happens if the stock and real estate markets crash again?
Savage told the council, with approval of the city’s bargaining units, the city may be able to come up with a way to lower its payments to CalPERS.
According to the California Policy Center’s report, “CalPERS, and the public employee unions that dominate CalPERS, have done a disservice to taxpayers, public agencies and ultimately, to the individual participants who are counting on them to know what they’re doing. They were too optimistic, and the consequences are just beginning to be felt.”
And city residents should remember that nearly 70 percent of the city’s budget goes toward funding public safety. Cutting the funding for the police and the fire departments are cuts that may prove too unpopular with the city residents.
Let’s all take a deep breath and wait and see exactly what plan city staff can devise.