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Grand Jury Finds Santa Barbara-Area Pension Systems at Risk of Being Unsustainable

A Santa Barbara County Grand Jury report asserts that several local government pension systems have high “solvency risk” due to the large amount of unfunded liabilities, and recommended that cities seriously discuss ways to keep their systems sustainable in the long term.  

The investigation, summarized in a report released last week, came after a January 2018 League of California Cities study found “several Santa Barbara systems have among the highest employer’s contributions in the state and may not be sustainable without new revenue or changes in benefit structures.”

That study found that city pension costs throughout California will dramatically rise to unsustainable levels, and rising costs will require cities to nearly double the percentage of contributions to the California Public Employee Retirement System (CalPERS).

The city of Santa Barbara said as much during its recent budget workshops: The city plans to pay $23.3 million in pension costs for general fund employees in the 2018-19 year, and expects that number to reach $40 million by 2025.

Police and fire department employees account for the majority of the city’s rising pension costs, another statewide trend: For every $1 a city public safety employee earns, the city has to pay CalPERS 52 cents toward that employee’s retirement.

The Grand Jury report found the largest unfunded liabilities in the largest pension systems: the Santa Barbara County Employees’ Retirement System (SBCERS), and the city of Santa Barbara, Santa Maria and Lompoc CalPERS systems.

The panel labeled the systems with the highest “solvency risk,” due to the high ratio of unfunded liabilities to assets, as the pension systems for Carpinteria safety employees; Lompoc safety employees; city of Santa Barbara fire employees, police employees, and miscellaneous employees; and Santa Maria miscellaneous employees. 

“The solvency risks to the SBCERS plans are moderate and manageable,” the report found.

In conclusion, the report reads:

“There are substantial liquidity and solvency risks to the sustainability of many of the public defined-benefit pension plans in the county. Management of those risks may require new policy measures.

“The 2017-18 Santa Barbara County Grand Jury concludes that the state of California, in passing the new PEPRA law, which went into effect on Jan. 1, 2013, has already imposed a statewide measure which has had a modest positive effect on the liquidity and solvency of the Santa Barbara County public pension systems.

“However, if there are additional fiscal shocks, such as an exogenous fall in tax revenue or a period of low returns on pension assets held by CalPERS, then other new policies may be required.

“Such measures could be to reduce salaries and other non-pension benefits, to raise employee and employer contributions or to cut benefits, apply fiscal measures to fund higher employer contributions, as well as start new negotiations with labor unions to raise contributions from employees, or to otherwise modify benefits not covered by the new PEPRA Law of 2013.”

In light of all that, the Grand Jury recommends that the governments of the county and its cities — Buellton, Carpinteria, Goleta, Guadalupe, Lompoc, Santa Barbara, Santa Maria and Solvang — hold open meetings to discuss “potential revenue gain and cost-saving measures that may be necessary to ensure continued adequate funding of their pension plans.”

The government agencies should also “analyze capital spending, employer/employee contribution rates, staffing levels, and all existing taxes and revenue sources under their control to identify potential revenue gains and cost savings.”

The agencies have 60 or 90 days to officially respond to the report and its findings.

The California Public Employees’ Pension Reform Act (PEPRA) went into effect in 2013, and implemented some benefit system changes for new employees, including a higher retirement age to be eligible for benefit formulas and capping the salary that could be used to calculate benefits.

PEPRA plans “appear to be more solvent than older plans,” the Grand Jury wrote.

A 2011 Grand Jury report, “Local Government Post Employment Benefits in Santa Barbara County: Complicated and Costly,” was written before PEPRA was enacted, but raised similar issues as the recent report about the defined benefit plans and unfunded liabilities.

A 2008-09 Grand Jury report looked into the Santa Barbara County Employees' Retirement System.

Noozhawk managing editor Giana Magnoli can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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