While city officials were optimistic about a budget for the upcoming fiscal year that actually restores some positions after years of cutting, rising employee pension costs are contributing to a long-term deficit that is expected to grow to $2.3 million by 2016.
The costs stem from a recent decision by the California Pension Employee Retirement System (CalPERS) to increase amounts cities are required to contribute for their pension costs in 2015.
Meanwhile, bright spots in this year's budget include the restoration of three vacant firefighter positions, no anticipated layoffs, no pay cuts or unpaid furloughs and no further reductions in city services.
But the long-term forecast for 2016 is an even dimmer than the city predicted when it forecast a $636,000 deficit in February. That was before the CalPERS decision was handed down. According to City Finance Director Bill Mushallo, the city hasn't yet received official numbers from CalPERS on how much their annual pension payments will increase. But Mushallo estimates the change could increase annual city payments to CalPERS by as much as 10 percent.
"It's a pretty big increase that cities are facing. From a financial stability standpoint, it's prudent what CalPERS is doing," Mushallo said, explaining that CalPERS' new policy will enhance the agency's long-term fiscal sustainability but require bigger payments from cities in the coming years. But, he said, "The impact for cities could be significant."
Mushallo estimated that by 2016, the city's payments from its general fund to CalPERS, which is the pension system for all police, fire and miscellaneous city employees could increase by almost $1 million. That, coupled with rising health care costs for public employees and retirees, and a need to restore the city's rainy day reserve that has been nearly depleted during the recession, put the city more than $1.6 million deeper in the red than it had anticipated in February.
"The good news is that it isn't happening until 2015, so we're two years out from all this," said Mushallo. "But we are going to have to look into alternatives to cover the costs. We've been thinking about a sales tax increase and this just furthers the need for a funding mechanism like that."
At $35 million, the city's draft general fund budget for the 2013-2014 fiscal year — which pays for most city salaries, services and benefits — is more than 5 percent higher than last year's. City revenue is expected to increase by almost $750,000 in 2013. Between the increased revenue, projected to come partially from the East Washington Shopping Center opening and a $1.4 million budget surplus carried over from last year, the city is looking at finishing the 2013-14 fiscal year with approximately $528,000 left in its general fund.
The final budget will return to the council for approval on May 20.
(Contact Janelle Wetzstein at firstname.lastname@example.org)