2017-06-16 / Front Page

Pension costs continue to burden city budget

About 88 percent of budget goes to salaries and benefits
By Melissa Simon

With pension costs expected to continue rising over the next several years, officials say Simi Valley’s 2017-18 budget, passed by the City Council this week, may have been the last “reasonably easy” one to balance.

The new fiscal year begins July 1, and on Monday the council approved a $70.2-million general fund budget. Of that figure, $62 million, or 88 percent, will be spent on personnel salaries and benefits, including pensions for former and current city employees.

Rebekka Hosken, Simi’s budget officer, said the city expects to receive $68.8 million in general fund revenues next year, which leaves a budget gap of $1.4 million.

To cover the gap, the city will allocate $1.4 million in former redevelopment funds—money that has been in the care of the State Department of Finance since 2012, when California eliminated all redevelopment agencies, including Simi Valley’s. The city currently has about $7 million left under the care of the state, including the $1.4 million needed for 2017-18.

Hosken told the council at Monday’s meeting that the budget gap will widen further in future years primarily because of increasingly higher payments the city must make to the California Public Employees’ Retirement System, or CalPERS, the state employees’ pension fund.

Over the last two decades, lower-than-expected investment returns and longer life spans have created an imbalance in the city’s pension fund, causing CALPERS to charge cities more to keep the system sustainable.

“Next year’s (budget) gap is projected to be $5.7 million and this grows to over $9 million by 2021-22,” Hosken said.

“The annual (redevelopment funds) to be applied toward this varies from about $400,000 to $1.4 million per year and is good for another five to six years,” she continued. “Obviously, it’s insufficient to close that gap and we’re going to have to come up with some new solutions to address this issue.”

Simi Valley’s annual pension costs are expected to double to nearly $22 million by 2022-23. And beyond that, the costs “only go up from there,” said City Manager Eric Levitt.

“Past that, I don’t know what will happen,” Levitt said. “Once (the city’s pension accounts are) fully funded, then that might start to drop, but I don’t think it will happen in the next 10 years, and probably not in the next 15 or 20 years either.”

On Monday, the council also approved separate operating budgets of $36.6 million for waterworks, $15.3 million for sanitation and $10.4 million for transit.

‘Man up’

During the public comment portion of Monday’s meeting, Simi Valley resident James Bartholomew said he is concerned about the city’s deteriorating infrastructure “that will cost significantly more in the future for the neglect of today.”

But the most pointed comments came from resident Greg Litster, who urged the council not to approve the budget, asserting it is not balanced and does not sufficiently address pension liabilities.

“Pension liabilities are a fiscal crisis for taxpayers in Simi Valley. The fact that this budget kicks that can down the road is a disgrace,” he said. “If you approve this budget tonight, every single one of you should be ashamed of yourselves. It is this

City Council’s responsibility to solve the crisis. Man up . . . and do what is right for the citizens who elected you.”

‘Grim future’

Prior to casting his vote, Councilmember Glen Becerra said the “tens of millions of dollars” in expenditure increases in the coming years paint a “grim future.”

“I was lucky enough to be around for the years when we had lots of money and . . . we have $30 million sitting in (reserves). But that money can so easily be spent and disappear,” Becerra said.

“We’re in perilous times as far as budgeting goes. This is probably the last reasonably easy budget we’re going to have, and as a council, we need to come to the reality that it’s going to get nothing but ugly from here.”

Mayor Bob Huber said the council needs to be proactive. He suggested the creation of an ongoing committee comprised of financial professionals who can “wrap their arms around the budget” and offer advice to the council.

Councilmember Keith Mashburn said he liked the idea of having a budget committee.

“We have to be working on the budget every single day with every decision we make for this city . . . thinking of what we’re doing for the taxpayer,” Mashburn said. “I look at it as a positive to have folks looking over our shoulder. We have to always be on our toes.”

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