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The Pleasanton City Council told staff last week to plan on withdrawing $2 million over the next two years from the Section 115 Pension Trust and use that money to help pay off its employee retirement costs as the city continues to develop its next budget.
Even though the city’s actuary, Doug Pryor, told the council during its March 4 meeting that in an ideal world the city wouldn’t touch the money in that supplementary trust fund early, most of the council agreed using some of the funds now would minimize the budget reductions they will have to make in the near future.
“This is an effort to smooth the reductions that we have to make,” City Manager Gerry Beaudin said during the meeting. “We’re talking about $10.8 million (in reductions) … this is essentially applying money that was set aside for the pension — earlier than an actuary might recommend — practically to smooth us into budget reductions.”
“It gives us time to orient ourselves to the reductions that are in front of us and make those harder decisions but hopefully not going as deep as we would have to,” he added.
Pleasanton has two pension and retirement plans: its CalPERS pension plan and its other post-employment benefits plan. No decisions were made in regards to the OPEB last week because of how well that plan is doing financially, staff said.
In 2018, the city established its Section 115 Pension Trust in order to address its unfunded retiree medical and pension liabilities, which exceeds $200 million. According to the city, the total market value for the trust fund at the end of the 2023-24 fiscal year was $51.1 million.
Pryor said the purpose of the trust is to set aside funds and earn greater returns than the city’s general fund could in order to stabilize pension costs in future years. The trust also serves as a buffer for rising pension costs.
Last year, one of the top critiques made by opponents of the half-cent increase sales tax measure — Measure PP, which ultimately failed at the polls in November — was that the city should have looked at possibly drawing from that pension fund in order to address the ongoing budget challenges, which include a projected $10 million deficit every year for the next few years.
According to the city’s website, financial advisers — including an actuarial consultant — previously recommended that the city “refrain from using these funds in the near term to bridge the budget deficit” because doing so could “hinder the City’s ability to meet future pension obligations”.
But after last week’s discussion, four of the five council members agreed that they should use some of the fund.
“For me, I would like to preserve the principal so that we could use this $2 million in 2025 and $2 million in 2026 to look at offsetting or softening the blow to our community members,” Mayor Jack Balch said.
Pryor reiterated various times throughout the meeting that the supplemental trust can really only be used to pay either CalPERS directly or to reimburse the city for CalPERS payments.
“We’re not withdrawing money to pay for general fund expenses,” Councilmember Jeff Nibert clarified. “We’re withdrawing it to reduce our CalPERS contributions from the general fund in that particular year.”
However, Pryor said to the extent the city uses the supplemental trust to pay part of its CalPERS bill, what the city is really doing is slowing down the progress of reaching its 100% funding target for its pension and retirement plans.
He said as an actuary he doesn’t have to balance a budget like the city does, which is why his original recommendation was to not take out any money from the trust.
“If I look at the plan and you said ‘what do you suggest I do?’ I would say continue on your path,” Pryor said. “Don’t take any money out of the supplemental trust. You’re at 75% funded on the CalPERS plan … continue towards that 100% target — that’s where you want to be, that’s where you should be long term.”
Councilmember Julie Testa was the only member on the dais who agreed with the original recommendation of not using any of the funds yet.
“I know it’s hard to understand how we’re going to manage the next 10 years, so I suspect that some of this funding is going to get used, but tonight I’m just going to say just because we can, doesn’t mean we should,” Testa said.
Testa recalled when the pension structure in Pleasanton was originally proposed more than 20 years ago and how the city was told at the time it wouldn’t cost a dime. Now, she said they are looking at making $40 million in pension payments over the next 20 years and because of that, they need to be careful in how they spend the trust money.
“It’s so overwhelming that over the next 10 years, the amount increases when we’re already unable to make the full payments … and it will increase so significantly over the next 10 years,” Testa said. “If we start using that 115 (fund), it only makes it worse. It is truly kicking the can down the road.”
However, Pryor also recognized the city has this supplemental trust and that at some point the city is going to send that money to CalPERS, it’s just a matter of when — which is why he provided two different scenarios where the city starts transferring money to CalPERS sooner.
“The primary purpose of the supplemental trust is to be able to manage these upticks in the contributions (to CalPERS),” Pryor said. “To do it now … it just gives you less ability to deal with this if things go bad in the future.”
Pryor said once the city goes down the path of starting to transfer money out of the trust, they are still stuck with a 75% funded CalPERS plan and the city is still inevitably deferring or delaying the time over which it is going to get that plan to 100% funded.
But due to the city’s ongoing budget challenges, the council majority still thought that taking the $2 million over the next two years to help pay the city’s pension and retirement costs will offer some help.
“It’s essentially allowing us to top off or take that extra bit,” Beaudin said. “Yes, it’s all money that the city has generated over time, it’s all money that we’re putting toward the pension — it’s just creating some general fund relief by using the trust.”
The idea of adjusting and making policies on how or if the city wants to continue taking money out of the trust was tossed around by councilmembers Matt Gaidos and Craig Eicher, the latter of whom said he wants to see a long-term plan for how and when they use the fund, especially with changing financial situations in the future.
Beaudin said there will be opportunities to bring up the issue of when to use the trust fund in the future and that the city will hit pause on using the trust after the two years are up and the city looks at developing its following two-year budget.
Eicher also clarified that as the city makes its CalPERS contributions, they are bringing down the liability every year. However, when he asked if the city could use the trust in an economic pinch over time to put them on better financial footing, Beaudin made it clear that in the long run, taking the money out of the trust is not beneficial.
“If it’s the aggregate of our total financial situation, we’re not on better footing. We’re using one-time money to bridge our operational, structural deficit, which is not solving our overall financial situation,” Beaudin said. “Our costs are still high and we’re pulling money off the trust to pay the pension, which doesn’t make us better off in the long run, it actually leaves us further behind.”
That’s why Testa reiterated that she did not want to dip into the funds, even though that is what the council ended up agreeing to at the end of the discussion, and said the city knows it shouldn’t be spending the money but because Measure PP failed, they have to find ways to alleviate the “extreme cuts that our community is now going to suffer”.
“When we look at these graphs and we look at the better case (scenario), in 2038 — even with this 115 trust — we have to figure out how to pay $36 million payments,” Testa said.
The city needs to trim its personnel cost, the cost needs to be proportional to the revenue generated by the city and the city’s population.
Over the past 4 years the city’s population has decreased by -8.39% , But in the same time the personnel cost has increased by +19.9%. This week the city launched a website asking residents for inputs on what services to cut to save ~7M annually. The only option the city is presenting to residents is to “cut services” – even if the city decides to cut all the items in their proposed list it will total to ~11 Million. The city does not mention its biggest expenses and what they are doing to reduce those. (Personnel Services – $103.4M, Materials and Supplies – $34.99M, Pension Costs – $24.1M, Repairs and Maintenance – $6.8M).
This proposed cut to services the city is seeking inputs from its residents is just a fraction of its total expense ~ 7% – And most items in the list are just basic services any city needs to provide. Newer residents in Pleasanton pay significantly more in property taxes and city is proposing fewer services for them because the city could not keep its expenses in check and unwilling to make cuts that is proportional to the population. The resident survey is just a joke – trying to give the false pretense of taking into account residents inputs when in fact residents dont have any inputs on 93% of city’s expenses which the city seems to imply cannot be touched. I was having some hope with the new mayor and city council on being open with residents, but unfortunately this is disappointing to see.
The proposed cuts are being presented as all or nothing. There reductions that can be made and not have to completely cut many services. We need to be ok with reductions to FTEs in areas that don’t affect safety.