Monday, May 29 , 2017, 2:18 pm | Partly Cloudy 64º


Ron Fink: Lompoc Budget Between Rock and Hard Place

On May 2, City Manager Patrick Wiemiller said in a briefing to the Lompoc City Council:

“The biggest financial hurdle facing Lompoc, according to staff, is the city’s obligation of about $70 million to the California Public Employees' Retirement System, or CalPERS.”

It appears the hit will come near the end of this budget cycle and city leaders are planning ahead.

The obligation to pay for these folks, all who retired years ago, isn’t going away anytime soon; staff estimates have determined it will take the next 20 years or more just to get contributions back to the point we are at today.

This problem is not unique to Lompoc as other cities enrolled in CalPERS, too. In 2015 Lawrence J. McQuillan published California Dreaming, which highlighted the unfunded liability crisis.

In the book McQuillan says: “Pushing the pension liability from today and onto our children and grandchildren leaves them with a depleted future and a potentially bankrupt California.

"State and local governments will scramble to find funds, forcing them to raise taxes, slash public services, and/or declare bankruptcy," he writes.

The Santa Barbara County Taxpayers Association has warned for years that continuing to provide lucrative retirement plans for government employees while grossly exaggerating the funds’ performance would lead to the situation we are faced with today.

Taxpayers, many who have no retirement fund of their own, are being asked to pony up a substantial portion of their income to bolster CalPERS retirement funds; a system managed by folks who frequently predict 7-8 percent annual return.

However, CalPERS reported a meager 0.61 percent net return on investments for the 12-month period that ended June 30, 2016.

Meanwhile conservatively managed private retirement accounts have regularly earnings of 6-7 percent annually.

Could the Lompoc City Council or staff have done something to plan for this issue?

Well, in earlier budgets the staff warned that increases were coming but they didn’t know how much. They expected minor increases, however as Wiemiller said, “when the chickens came home to roost” it turned into an “800-pound gorilla.”

Asked what this council or its predecessors could have done better, Wiemiller said, “all councils have done all they could do and have acted responsibly” and “even if we laid all of our employees off we would still be obligated to pay this money.”

So, what’s Lompoc’s answer?

Part of the answer is severe budget cuts Wiemiller said:

“The city of Lompoc could soon cut all funding to outside agencies, drastically reduce its capital improvement project expenses and ask residents to approve three new tax increases, if the city moves forward with a budget proposal.”

Wiemiller also recommended three tax measures for the November 2018 ballot: a half-cent sales tax increase, a 2-percent increase in hotel taxes to 12 percent, and a 6-percent utility users tax.

None of these actions will go over well.

First, those agencies that will lose funding will apply significant pressure to the council to save their cash flow.

Second, as people learn they will lose a substantial portion of their disposable income to fund a retirement system that has been mismanaged by fund managers, they may not support tax increases.

According to the website California Demographics: “In 2015, the median household income of Lompoc residents was $44,866."

It hasn’t gone up much since then. Two of these tax proposals will cause them to lose a large chunk of their disposable income.

Lompoc Council member Dirk Starbuck reminded everyone that “History shows the people in this community are not going to support tax increases. I just keeping looking at this.”

He later added, “especially when (voters) find out that one of the main reasons that we’ve got a raise in tax is to cover retirements, and there’s people out there struggling to buy food — I’m thinking we’re going to have a long budget session.”

The Lompoc Council and other cities now find themselves between a rock and a hard place:

Either they chose to place the proposed tax measures on the ballot and hope people support them, or more services will have to be cut to pay for the incompetent management of CalPERS, over which they have no control.

— Ron Fink, a Lompoc resident since 1975, is retired from the aerospace industry and has been active with Lompoc municipal government commissions and committee since 1992, including 12 years on the Lompoc Planning Commission. He is also a voting member of the Santa Barbara County Taxpayers Association. Contact him at [email protected]. Click here to read previous columns. The opinions expressed are his own.

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