The Pleasanton City Council is set for a wide-ranging discussion Tuesday night about how to address the city's growing unfunded pension liabilities.
Pleasanton currently owns approximately $160 million in unfunded liabilities associated with city employee pensions, a figure that is expected to grow over the next several years and impact how much money the city needs to contribute annually to California Public Employees' Retirement System (CalPERS), according to city finance director Tina Olson.
"In order to sustain services at current levels, including operations, plan for new capital and set aside funds for the ongoing repair and replacement of existing assets, the city must take a proactive approach to address this matter in advance of the estimated impacts," Olson wrote in her staff report.
Tuesday's public discussion at the Pleasanton Civic Center is designed to be informational, with a presentation by John Bartel of actuarial firm Bartel Associates and input from city staff about options to confront rising pension costs, including how to utilize millions the city has set aside to help pay down its pension liabilities.
City officials then plan to return to the council next month with recommendations for approval.
There are many reasons the city of Pleasanton -- along with scores of other public employers throughout California, including the Pleasanton Unified School District -- are staring down higher pension obligations, according to Olson.
"Most of these factors cannot be controlled directly by the city of Pleasanton, but rather are reflective of external market conditions, court rulings, past decisions and recently adopted CalPERS policies," she said.
Key factors include still-unrecovered CalPERS investment losses amid the 2008 recession, pension benefit enhancements, limited fund growth for CalPERS despite positive market trends, revising mortality tables and other actuarial assumptions, and continuation of various rules that increase pension liabilities, according to Olson.
The CalPERS board also recently lowered the assumed rate of return (also dubbed the "discount rate") on assets held by the CalPERS investment pool by a half-percent to 7%.
Another impact for Pleasanton is the shrinking ratio of active employees versus retirees, Olson noted.
Last year, there were more retirees receiving pension payments (621) than active city employees contributing to the fund (502), a ratio of 0.8. Those totals shifted drastically compared to just two decades earlier, when the city had almost four times as many active employees as retirees, Olson said.
The California State Legislature also passed pension reform laws in 2012 to help address the problem, but those changes focus on long-term solutions, leaving difficulties for municipalities in the short-term, Olson said. Among the changes was requiring workers to pay their employee share of pension contributions.
Combine those factors, and others, and Pleasanton city leaders are faced with $160 million in unfunded liabilities, plus the prospect of rising costs in the years ahead.
The city's annual pension contribution is estimated to increase from $14.2 million this fiscal year to over $21 million in 2021-22 and ultimately up to $28.5 million in 2026-27, according to Olson.
Knowing the pension problem was on the horizon, the council has worked to set aside about $22 million in recent years to prefund the city's pension liabilities. The question now becomes: How to use that money to address the problem?
City officials recommend the council consider two options -- prepay pension liabilities directly to CaIPERS and/or establish a "supplemental pension trust fund" to ease the budgetary pressures resulting from higher annual pension contributions, Olson said.
The council will discuss the pros and cons of those options Tuesday night.
While those are the preferred alternatives, Olson noted city officials could also consider issuing pension obligation bonds or borrowing money from existing city funds (like capital improvement or repair and replacement reserves) -- though city staff does not recommend either of those options.
Olson recommends the council hear the presentation and then forward the matter to its Audit/Finance Committee to work with staff on a proposed strategy to address the city's short- and long-term pension obligations. That recommendation is slated to be brought to the council for consideration Jan. 16.
Tuesday's open-session meeting is scheduled to begin at 7 p.m. in the council chamber at 200 Old Bernal Ave.
In other business
* The council will receive an update on pending negotiations with Pleasanton Garbage Service (PGS) for a new tentative franchise agreement for waste collection services within the city.
In addition to new rates, other changes up for consideration for the new deal, running from July 2018 to June 2028, include that the city would begin contracting with another firm to process recyclable and organic materials collected by PGS, rather than the items being processed at the PGS transfer station.
To that end, the council will consider increasing its contract with HF&H Consultants to complete negotiations with PGS and procure bids for recycling and organics processing.
The tentative franchise agreement with PGS is expected to head to the council for final approval next month, while a recommendation for recycling and organics is expected to be ready during the spring.
* Council members will hear a presentation on the Downtown Specific Plan update process, including discussions by the task force on preferred streetscape options and revised land-use plans for the Civic Center site.
* They will consider approving their committee assignments and other appointments for 2018, including confirming Councilman Arne Olson to serve as vice mayor for the next year.
* In closed session before the open meeting, beginning at 6:30 p.m., the council will speak with labor negotiators about contract talks with the International Association of Firefighters Local 1974.