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The Pleasanton City Council voted 3-2 last month to pass a new pension funding policy that aims to create certain guidelines so that the city has the ability to draw down from its Section 115 Trust Fund in the future in an effort to manage its pension obligations.
During the March 17 council meeting, members of the dais extensively reviewed the different strategies and options for how to effectively use the trust fund, which is a supplemental fund the city established to address its unfunded retiree medical and pension liabilities, before settling on a policy that still mandates that the fund be maintained at a level between 100% to 150% of the annual pension costs.
“Having a pension management strategy and a policy will help the city ensure that all of the available financial resources that we have for this purpose are used effectively and sustainably,” City Manager Gerry Beaudin said during the meeting. “The strategies that are outlined in the proposed funding policy will ultimately help us be as fiscally prudent and responsible as possible.”
The city currently participates in various pension plans that are administered by the California Public Employees Retirement System. Over the years, staff said the city has been proactive in implementing different strategies to pay down those pension liabilities and stabilize pension costs in the future.
The city of Pleasanton has a $239 million CalPERS unfunded accrued liability as of the latest CAlPERS valuation in June of last year, according to Mike Meyer, vice president at NHA Advisors, the group that compiled the data and analysis for last month’s presentation.
However, after the 2008 great recession, the city’s pension expenses have substantially increased primarily due to CalPERS investment losses and various changes in CalPERS policies. These rising pension costs have in turn directly impacted the city’s general fund and enterprise funds because not only is the city paying those costs out of those funds, but those costs have grown significantly and continue to show signs of additional growth in the future.
“From an overall budget impact, if you look at 2018 the city is paying about $14 million. Fast forward to 2026 you’re paying double that,” Meyer said. “Right now it’s close to $28 million, and then it’s projected to go closer to $36 million by the end of the decade before it starts to decline.”
That’s why, apart from doing a deep dive on the city’s pension management strategies, the city also looked into and presented to the council different recommendations on how the city can start using the 115 trust funds, a fund that was established in 2018 with the goal of eventually being depleted in order to help address these growing pension costs.
“Really it’s about making sure that we’re creating as much relief as possible for our general fund to be able to sustain the core service and programs that the community have come to expect from us,” Beaudin said.
Of note, the 115 trust currently has a $60 million balance as of December, which equates to 203% of the 2026 fiscal year’s total annual pension costs.
The council reviewed four preliminary options to smooth the peak in pension payments. The options ranged from withdrawing all of the funds over an 18-year period, to withdrawing until a certain amount and making sure there is still a good amount left in the fund.
“More of the trust being used, that’s going to allow you to bring down that net payment to the general fund to the lowest level … and then your more conservative option, which is using less of the trust, still allows you to really cut down on that peak but just not at a low level,” Meyer said.
Beaudin added to that point by retirerating that staff’s recommendation was to withdraw funds from the 115 trust until $44.3 million remains.
“The recommendation tonight, for policy making, is to be a little bit more conservative with the deployment of the trust knowing that we don’t know what we don’t know over the next period of time but also knowing that the council, each two-year budget cycle, will have an opportunity to sort of ebb and flow,” Beaudin said. “If things are looking really good … we can probably be a little bit more aggressive. If they’re not, we may want to dial it back.”
While there wasn’t much discussion over the use of the Section 115 Trust Fund recommendation, one of the main points of contention which led to the split 3-2 vote was the guidelines that the policy set around pension obligation bonds. These bonds are a financial tool that allow agencies to borrow money to make one-time payments to CalPERS.
The policy outlines over half a dozen guidelines that councilmembers Julie Testa and Jeff Nibert voiced concerns over mainly because they saw certain risks that could be presented to future councils like if the CalPERS return rate inexplicably changes, causing the city to pay more in debt interest.
Testa asked the council for support in removing the bond language from the policy and Nibert supported that request but the overall policy remained unchanged as the rest of the council voted to keep it as is primarily because they felt like the guidelines were necessary to caution future council members.
“Put the language in and if it gets used, we put the guardrails in place to use it and if it never gets used then it’s no harm, no foul,” Beaudin said.
In other business
The council unanimously voted to approve a new city policy that allows for early staff evaluation of development-related rezoning and General Plan amendment applications.
The new process, dubbed the early project review applications, will allow the council to weigh in on potential rezoning requests before they go through staff’s normal vetting process so that developers can have a better idea early on of whether their residential or commercial projects would be supported by the council in concept.
Once vetted, the application would then go back to the council for final review.
