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Budget surplus helps trim pension liabilities

Original post made on Nov 11, 2011

With the state bleeding red ink and many California cities and school districts also facing budget woes, the city of Pleasanton has found itself with a $3.5 million surplus as it closed the books on fiscal year 2010-11. That's to the credit of better-then-expected property tax revenue of $48.6 million, albeit only 0.4% above forecast, sales taxes that came in at $18.5 million, well over $1 million better, and other revenues leaving the city coffers with $87,832,845, a 2% gain over projections.

Read the full story here Web Link posted Friday, November 11, 2011, 12:00 AM

Comments (19)

Posted by watching pensions, a resident of Another Pleasanton neighborhood
on Nov 11, 2011 at 3:06 pm

"the council agreed to set aside $1 million of the surplus to establish a fund that will start paying down the city's unfunded pension liabilities that total as much as $121 million"

We only need 120 more years of surplus like this to pay off our unfunded pension liabilities.

While paying down this liability is the right thing to do, it shows how much more is needed to make a noticeable dent.


Posted by franco, a resident of Vineyard Hills
on Nov 11, 2011 at 5:13 pm

franco is a registered user.

Before I got to the post above, this was exactly the conclusion I was coming to.... WE NEED AT LEAST A $1MM SURPLUS FOR THE NEXT 120 YEARS TO PAY DOWN THE CURRENT UNFUNDED LIABILITY!!!!!!

And won't this liability go up each year in the meantime??

The whole headline is ridiculous.


Posted by Arnold, a resident of Another Pleasanton neighborhood
on Nov 11, 2011 at 6:26 pm

"Much like paying off a home mortgage, the city can continue paying the obligatory CalPERS payments to stay even or it can make booster payments to actually start paying down the principle."

You do not understand the CalPERS/agency (Pleasanton) relationship. It is nothing like a mortgage. For instance, the 8 million dollars that Pleasanton took from the retiree medical fund and paid toward the police pension plan, just a few months back, is now worth about 7.56 million. While the investment declined the interest rate on the 7.75% rate of return hasn't which compounds the problem. What I mean is that the principal on the 8 million should have grown by a prorated 2.76% over the past 4+ months of the fiscal year for a total P+I of 8,220,800 dollars. The difference is a 660,800 dollar shortfall in just a few short months.

The real issue is the 180 million in unfunded liabilities (pension + health care). Those liabilities have probably grown by over 8% in just over four months (CalPERS 5.5% loss plus the 2.76% prorated interest they haven't returned).

John Bartel, an actuary and expert on CalPERS recently presented to the city council. What he very clearly stated is: despite the best efforts of the city to pay more toward the unfunded liability you can't control what happens with CalPERS, and even if they meet the 7.75% rate of return the cost will still increase for many, many years to come. From July 1 to the present CalPERS assets have declined from 237.5 Billion to about 225 Billion. If you multiply the 237.5 Billion the prorated return of 7.75% (2.76%), the CalPERS assets should be tracking at 244 Billion in a perfect "CalPERS" world. They aren't even close and most experts do NOT believe they can consistently achieve the returns they're claiming. Adding to the problem is that rapidly increasing retirements have pushed CalPERS past a tipping point. They are now paying out about 4 billion more than they are taking in.

The compounding problem in all this is that the CalPERS/Plesanton plan is only about 60% funded. But the 7.75% rate of return is really based on the CalPERS plan assumption of 100% funding.

If you had 100 dollars and expected a 7.75% return you would have $107.75 if everything went right, for a return of $7.75.

If you only have $60 to invest (60% funding level) and you need a return of seven dollars and seventy five cents what interest rate do you need to achieve to "stay even"? When you solve that simple question you will begin to understand how deep the pension hole is.

There is a reason Pleasanton has more 100K pensioners than just about every city in a state that provides that best pensions in the country. Throwing more money at the problem while only marginally addressing this issue won't solve anything. If the real issues aren't addressed then throwing more tax dollars toward city government pensions is only assuring their retirement benefits while diverting money from incomplete projects like the bike trails, the Bernal Park. Etc…

I appreciate that work the city has done thus far but it just doesn't go far enough. I can't accept allowing future generations to pick up the tab for the mistakes that have been 14 years, eight years ago, and that continue to this day.


Posted by nothin' else ?, a resident of Another Pleasanton neighborhood
on Nov 12, 2011 at 12:15 am

Out of all the possibilities, too bad we can't spend the million on something all of Pleasanton would enjoy and benefit from ! !


Posted by watching pensions, a resident of Another Pleasanton neighborhood
on Nov 12, 2011 at 7:45 am

It used to be that money that was not spent each year, "surplus", was used for capital facilities. It appears that Pleasanton will not be spending money on new facilities for 120 years, so that the pension liability can be paid off. That assumes that CalPERS makes at least 7.75% return every year for the next 120 years. If CalPERS makes less, then our liability goes up. I expect if the City wants any new facilities at this point forward they will ask the taxpayers to pay for a bond, saying "we do not have money," where actually we have the money but it is just being spent on pensions. The City Council has made the decision that the union employees are more important than the residents. The only thing the residents can do at this point is make sure we do not vote for any candidate that is endorsed or supported by a public employee union. Until we do this, nothing will be fixed.


Posted by GX, a resident of Another Pleasanton neighborhood
on Nov 12, 2011 at 8:54 am

How many of you showed up at the City Council meetings earlier this year regarding this topic? How many of you are letting the Mayor/Council know right now how you feel as they look to finalize the next police and fire contracts?

We deserve the government we get. If you don't get involved and help make your neighbors away of this broken system that is ripping off current/future taxpayers, you can be assured that nothing will change. And Pleasanton will be the poorer for it for decades to come because of this.

Get involved - help make Pleasanton a better place.

**************

Here is a simple suggestion that one of you can take. Write an op-ed on the 120 year point. People need to know this. It is ridiculous that the city can get positive media points from a headline like this for doing next to nothing. They are trying to fool the general population so that we will go back to ignoring this issue.


Posted by b, a resident of Another Pleasanton neighborhood
on Nov 12, 2011 at 3:14 pm

Oh dear, oh my. The sky is falling on Pleasanton again. The city is earning a PROFIT during what you repeatedly describe as the end-of-the-world depression and you manage to turn it into bad news.

The unfunded pension liability is a wild a-- guess. They add up what they think the fund will be worth way into the future (based on a wild a-- guess about how the markets will perform) and then subtract how much they think the pensions will cost over that same ridiculously long period of time (based on another wild a-- guess about how long people will live). If all these thousands of variables (calculated by these well-pensioned bureaucrats that you despise so much) happen to add up to a negative number, it is called an unfunded liability.

It is sort of like saying that you have a $500k mortgage. Oh my! How can anyone earning $50k/year ever pay that off? Will you earn enough money over the next 30 years to pay off that mortgage, plus feed your family and buy your mother a nice Christmas gift each year? Well, that depends on how much your salary increases over the next 30 years, how much all your other expenses increase, and how long your mother lives.

How can we take these TEA Partiers seriously when they take such liberties with statistics? It is reckless to throw around wild a-- guesses calculated by desk bureaucrats as if they were real numbers.


Posted by GX, a resident of Another Pleasanton neighborhood
on Nov 12, 2011 at 5:55 pm

b - it seems from your comments that you don't understand the actual numbers nor the implications.

Rather than trying to label people in an attempt to undermine their position, might I suggest you educate yourself.

Your reaction proves that the city's PR attempt to spend a bit of money to say they are on top of the problem. I do hope others aren't so easily fooled.


Posted by b, a resident of Another Pleasanton neighborhood
on Nov 12, 2011 at 10:07 pm

They aren't "actual" numbers. They are predictions about the future, based on countless variables and assumptions. In other words, they are wild a-- guesses, made up by people with big spreadsheets and big state pensions.


Posted by No surplus, a resident of Another Pleasanton neighborhood
on Nov 12, 2011 at 11:59 pm

A family that every month pays the legal monthly payment, and is fairly responsible in most areas of their lives, will still owe many times the original amount charged.
Elementary? Then how could the term 'budget surplus' be used...we're not idiots.


Posted by b, a resident of Another Pleasanton neighborhood
on Nov 13, 2011 at 12:26 am

No, you won't owe more, because that amount isn't due. It is just a wild guess about what may or may not be due, many years far in the future, if a nearly infinite number of variables play out exactly the way the highly-pensioned Excel jockey in Sacramento guessed they would play out. Meanwhile, the Earth may be invaded by aliens. Or the economy might improve.


Posted by to b, a resident of Another Pleasanton neighborhood
on Nov 13, 2011 at 1:12 am

who is the highly-pensioned Excel jockey in Sacramento?


Posted by OINK!, a resident of Old Towne
on Nov 13, 2011 at 9:01 am

How can the PW expect the citizens of Pleasanton to celebrate that every spare penny that should benefit the community instead goes to this out of control pork! You must think us dumb as pigs.


Posted by GX, a resident of Another Pleasanton neighborhood
on Nov 13, 2011 at 9:09 am

b, if I understand you correctly, you are suggesting that we ignore the financial guidance from the actuary profession and decades of experience in running/projecting these matters.

Are you sure that is wise?


Posted by resident, a resident of Another Pleasanton neighborhood
on Nov 13, 2011 at 10:59 am

For those that are new to this board, 'b' is the mouth piece of the union. You will never convince him anything since he is paid by the union to keep beating the union drum. If you doubt that, just look at his postings that have been going on for at least a year.


Posted by b, a resident of Another Pleasanton neighborhood
on Nov 13, 2011 at 11:24 am

No, I'm not suggesting we ignore the calculation. I'm suggesting we take it with a grain of salt. You all are here with your torches lit, trying to burn down the barn. I'm trying to be a voice of reason.

The reality is that these are guesses, and they swing wildly from year to year, based on short-term factors, subjective variables and political motives. It is reckless to make long-term decisions based on highly volatile short-term numbers. That very important nuance is getting lost in all the fire and brimstone around here.


Posted by GX, a resident of Another Pleasanton neighborhood
on Nov 13, 2011 at 11:47 am

b- I agree that everything needs to be put in the proper context to make appropriate decisions.

As I read your previous comment, I reflect back to 2000-2003 where we were told (by unions, union dominated CalPERS,local politicians, city management) that is was OK to dramatically increase pension benefits because the market should continue to rise and the increased benefits wouldn't cost taxpayers any extra.

Is this an example of your "long-term decisions based on highly volatile short-term numbers"? What is your take on this fateful set of decisions and how reality was dramatically worse than plan?

Might it not be time to be a bit conservative with our planning to make up for this past gross error?


Posted by Arnold, a resident of Another Pleasanton neighborhood
on Nov 18, 2011 at 8:19 pm

After re-reading this article, "Budget surplus helps trim pension liabilities", it is clear this article is completely and absolutely a distortion of the truth. Shame on the PW for accepting this nonsense as fact.


Posted by Pan, a resident of Parkside
on Nov 18, 2011 at 10:54 pm

Oh, okay.


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