City’s CalPERS pension liability increases 4.7% to $476 million

By the Daily Post staff

The city of Palo Alto’s unfunded pension liability has increased by 4.7% to $476 million, according to CalPERS, the agency that runs the city’s pension funds.

However, that percentage doesn’t reflect the city’s effort to hedge against the liability by putting money into a side fund for pensions. That effort is showing some success in reducing the liabilities.

City Manager Ed Shikada relayed the news to the City Council’s Finance Committee in this report (see PDF page 5) that gives the annual figures for pension liability.

Here’s Shikada’s report (see PDF page 5) from one year earlier for comparison purposes.

The reports show that that for the fiscal year ending June 30, 2018, the city’s liability according to CalPERS was $455,568,431. A year later, on June 30, 2019, the liability had grown to $476,924,698.

The growth in the unfunded liability in one year was $21,356,267, or 4.68%.

The term “unfunded liability” means the city has no ability to pay this debt.

In the early 2000s, the city’s pension liabilities were fully funded. Today, between 61.3% and 66.1% of the city’s pension liabilities are funded.

This problem isn’t unique to Palo Alto. CalPERS, which covers state and local government employers, has a total unfunded liability of $138.9 billion. CalSTRS, the pension program for school districts, has a $107.3 billion liability. Those figures are from the Public Policy Institute of California.

But the official CalPERS numbers from Sacramento don’t reflect an effort by the city to prepare for a future pension shortfall by stashing money into a side fund.

This side fund, formally known as a Public Agency Retirement Services Section 115 Trust Fund, aims to pay off 90% the city’s unfunded pension liability in 15 years. (Details are in this June 16 report from Shikada.)

For the year ending June 30, 2018, the city’s 115 Trust Fund had $22,012,777. A year later the fund had grown to $32,282,584 due largely to contributions the city council made from the city budget.

When the side fund numbers are applied to the city’s unfunded liabilities, the city’s pension picture looks more positive.

For the year ending June 30, 2018, the city’s pension liability drops from $455 million (the CalPERS number) to $433 million (including the side fund).

For the most recent fiscal year ending June 30, 2019, the liability falls from $476.9 million to $444.6 million.

6 Comments

  1. Thank you for a very clear picture of the City’s pension situation. I’m pleased that the “side fund,” as you put it, is growing and may relieve a possible CalPERS default. To start that fund now is good planning on the part of City Council. It’s a shame that CalPERS can’t be better managed.

  2. I think you’ve incorrectly defined unfunded liability. Its not that the City “has no ability to pay” – rather this is the mathematical calculation of what would be due today minus what has been saved today. It’s really important to note that the unfunded liability amounts are NOT due today – the system works such that contributions and investment income pay these amounts over a 20 year period. As of June 30, 2019: of each dollar of benefits paid, 58 cents comes from investment earnings, 29 cents from employer contributions, and 13 cents from employee contributions.

    • This is the commonly accepted definition of unfunded liabilities: “Unfunded liabilities are debt obligations that do not have sufficient funds set aside to pay the debt.” I’d say the story got it right.

  3. Pensions may not be cheap, but they produce far more than what taxpayers provide.

    From the $162 billion taxpayers contributed nationwide in 2018 to public pension funds generated $341 billion in state and local tax revenues.

    In 2018, public pensions contributed to the U.S. economy $1.7 trillion ($872.3 billion invested from pension portfolio assets plus $836 billion of paychecks spent by beneficiaries).

    https://www.ncpers.org/files/NCPERS Unintended Consequences_2020_Update_WEB_FINAL.pdf?utm_campaign=coschedule&utm_source=twitter&utm_medium=NCPERS

  4. CalPERS logo should be a tital wave hitting the shore because we’re going to be overwhelmed by the debt these politicians are racking up. Good to see the Palo Alto council is taking steps to defend the city when the inevitable default occurs.

  5. Pensions may not be cheap, but they produce far more than what taxpayers provide.

    From the $162 billion taxpayers contributed nationwide in 2018 to public pension funds generated $341 billion in state and local tax revenues.
    ==
    Yet again this huge “talking point” whopper is floated by the public employee piglets. Pensions funds do not contribute one dime to local, state or national economies, the money they USE comes from money that the private sector would have used, and used it better and more efficiently.

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