Close to Home: Huge pension cost increases loom ahead for Sonoma County cities
Much has been written in this newspaper about Sonoma County’s pension crisis. However, locals cities are going to experience a much larger growth in costs than the county in the years ahead for two reasons. First, CalPERS eased up on employer contributions during the recession and those bills are coming due. And second, CalPERS recently decided to move from a 7.5 percent assumed rate of investment return to a 7 percent rate which, according to CalPERS will add another 25 to 40 percent to pension debt costs once it is phased in.
There are two components to pension costs: the normal cost, which is shared with the employees, and the unfunded actuarial liability cost, which is picked up by the city and its taxpayers. This latter cost is incurred when there are not enough assets in the pension fund to cover the retirement benefits already earned. The unfunded liability cost has grown over the past 15 years primarily due to retroactive pension increases and investments falling about 2 percent short of their assumed rate of return.
Now for the first time, the 2015 CalPERS actuarial reports provide an eight-year look ahead for pension costs. Doing the math, here is how those changes will impact future pension costs for some of our cities and how much of the general fund revenues they will consume, even before paying for salaries and benefits.
The city of Santa Rosa paid $11 million in unfunded liability costs last year but is expected to pay $41 million in 2023. From another perspective, the UAL cost is expected to climb from 7.6 percent of the city’s current general fund to 26 percent by 2023. This means the city will need to find $30 million in additional annual revenues over the next six years to cover its UAL cost.
Petaluma paid $4 million in unfunded liability costs last year, but will pay $12 million in 2023. Presented as a percentage of the general fund, the city’s unfunded libability costs are expected to climb from 9.8 percent to 28 percent by 2023. This means Petaluma will need to find $8 million in additional annual revenues over the next six years to cover its UAL cost.
Rohnert Park paid $3 million in UAL costs last year but will pay $9 million in 2023. This means Rohnert Park’s unfunded liability costs are projected to climb from 9.8 percent of the city’s current general fund revenues to 27 percent by 2023. This means the city will need to find $6 million in additional annual revenues over the next six years to cover this cost.
Healdsburg paid $1 million in unfunded liability costs last year but is expected to pay $4 million in 2023. Presented as a percentage of the general fund, this means the city’s pernsion costs will climb from 7.5 percent of the city’s current general fund to 28 percent by 2023. This means the city will need to find $3 million in additional annual revenues over the next six years to cover this cost.
Similar costs will be incurred for the smaller cities of Sebastopol, Cloverdale and Sonoma which, based on CalPERS figures, are expected to see their unfunded liability costs triple from a combined total of $1.4 million last year to $4.5 million in 2023.
The bottom line is while we have had many discussions about Sonoma County’s pension crisis — and what our supervisors are going to do about it — it is probably time for citizens to ask their city council members how they plan on addressing their soaring pension costs. Right now, we are not hearing a word.
Ken Churchill, a resident of Santa Rosa, is director of New Sonoma, an organization of financial experts and citizens concerned about finances and governance of Sonoma County.