Novato is facing $27.6 million in unfunded pension liabilities, according the latest statistics released this fall by the California Public Employee Retirement System (CalPERS).
Part of the reason is because employees are living longer, so the city has to pay out benefits over more years. But the biggest reason is that investment returns, from which CalREPRS derives a portion of its income, have plummeted since 2008, forcing the city to make up the difference.
Novato is not alone in this quandary. In fact, it’s doing better than many other California cities because of cuts made over the years. But $27 million is no laughing matter and the lack of available funds has prompted one local politician to urge Novato to take a step toward tackling the problem.
Councilwoman Jeanne MacLeamy wants Novato to endorse the Pension Reform Act of 2014, legislation that would allow changes to pension and retiree healthcare benefits going forward while protecting the benefits employees have already earned.Read more about the initiative here
“We keep saying that we have done all that we can do within the law to control our rising pension costs,” MacLeamy said at a December 17 council meeting. “And we have. This (legislation) will give us a few more tools. And for those cities that are in very bad finance shape it will help assure that retirees will have a pension and that future generations of taxpayers are not left with bankrupting costs.”
Pension Reform Act of 2014 is authored by several California pols who have had a front row seat to the impacts of ballooning pension costs, including San Jose Mayor Chuck Reed, whose Measure B requiring bigger employee contributions and smaller pensions by future employees, was approved by voters in June 2012. The measure has taken a drubbing after police and other unions filed a lawsuit and a judge recently ruled that portions of the law were illegal.
Other authors of the Pension Reform Act of 2014 include San Bernardino Mayor Pat Morris and Vallejo Vice Mayor Stephanie Gomes, whose cities were forced to declare bankruptcy after not being able to afford pension costs.
MacLeamy said she’s pushing for the Novato Council to sign on to the proposed legislation because despite the city’s efforts to address its budget deficit by cutting employees by a third and reducing services, unfunded pension liabilities keep growing.
“Since 2006 when we issued pension obligation bonds for $18 million to refinance our pension debt, our unfunded pension liability has grown again to approximately $16 million, in just 6 years,” she said.
The Novato Police Managers’ Association, the union that represents sergeants, lieutenants and captains, has called the proposed legislation dangerous and illegal.
“In Novato we have just started to stabilized from the staffing cuts of the past, and even considering endorsing the Pension Reform Act of 2014 will send the wrong message to employees who have strived to work on all budget matters,” said Jim Tross, president of the union, recently.
“We do not need any more insecurity and doubt in our lives, and we need to be able to hire and retain quality employees. We need to do what is best for the city of Novato. We need to trust the city of Novato will try to do its best for us,” he said.
Other Novato council members appear to be siding with the police union, or at least urging caution before the city signs on its support. One concern are the impending labor negotiations scheduled to start this spring.
“The timing is not good,” said Councilwoman Madeline Kellner. “Individually, if people want to support this initiative, that’s fine, but I don’t think it’s something the city should get into at this point.”
Councilwoman Denise Athas agreed, saying that supporting the Reform Act would “send the wrong message” to city employees.
“They have been amenable to changes in the past and have really helped the city with all the sacrifices that they’ve made,” she said.
Lucan agreed that supporting the legislation was premature, but said Novato should keep a close eye on how the legislation does.
“But if it does (get on the ballot), we should think about bringing it back because it’s about gathering the information that we need,” he said. “We need to look at the whole picture and make a decision based on that information.”What do you think? Would you like to see the Pension Reform Act pass and should the city of Novato sign on in support? Let us know in the comments below.