New city report on pension problem

A recent city council report showed that Petaluma’s unfunded pension liability ballooned to $74 million from $47 million. The increase comes from new reporting standards and, in general, Petaluma’s pension obligations are in line with most other jurisdictions in the CalPERS system.

However, City Manager John Brown said there are big concerns moving forward, particularly in light of the failure of Measure Q earlier this month, which would have raised $10 million annually for the city. How it will now deal with other financial obligations will be a big issue in the coming months and years, he said.

“The problem the city is facing is having enough funds to pay for things like replacing failing vehicles and other equipment,” Brown said, adding that at present the city had only $200,000 earmarked to replace vehicles. “We’re going to have to make some hard choices on how we’re going to deal with this.”

The lengthy pension presentation was made by John E. Bartel, of Bartel Associates, LLC, an actuarial firm out of San Mateo that is considered an authority on California’s public pension system and counts a number of agencies across the state among its clients.

Bartel concentrated much of the presentation on the city’s so-called “unfunded liability,” which is the projected shortage in the city’s ability to pay promised future benefits. He spoke separately about the pension obligations to police and fire for safety pensions verses those for other city employees.

Bartel said that Petaluma’s pension liability, when not considering public safety pensions, was a little better than average when compared to the obligations of other jurisdictions in the CalPERS system, which covers 1,800 government agencies across the state.

When public safety is added, he said, the city had slightly higher comparative obligations. But, he said, it was not out of the norm.

“Safety is modestly higher than we see around the state but I don’t think about it as being sufficiently higher to be problematic by any stretch of the imagination,” he said.

Bartel was invited by city staff to address the council in an effort to “educate and inform” city officials about the complex obligations regarding the pension system, said Brown.

“We also wanted to examine what we might be able to do to try to relieve some of the burden of the pension payments on our budget,” Brown said. “It is, as many people know, a large portion of the budget.”

Currently, nearly $1 out of every $5 the city spends goes toward public employee pensions.

Brown and Bill Mushallo, the city’s finance director, said staff wanted to help the city council better understand recent changes in the way CalPERS now requires agencies to report their unfunded liabilities, based on their market value. Market value is what they would be worth if converted to cash.

“With all of the recent developments, we felt it would be prudent to have the CalPERS pension expert come over and give a review of our pension plans, talk a little bit about the funding scenarios, the rates and some of the things we may or may not be able to do to address the funding issue,” said Mushallo at the meeting last week.

Bartel explained that the new calculations would make it seem like the city’s unfunded liability had ballooned significantly from last year, but it only appears to have increased because of the new reporting rules.

“Again, it will look like your unfunded liability will go up a lot, but that’s because CalPERS is changing from the actuarial value to the market value,” he said.

Previously reported as $47 million, the city’s total unfunded liability as of 2013 is roughly $74 million when measured at market value. It’s down slightly from last year, in large part because of CalPERS’ performance in the stock market. Bartel said that investments are only part of what affects the city’s pension obligations and that many other factors, including retirement age and increased mortality rates, also played a role.

The several council members said they felt positive about the city’s position, particularly in light of recent economic woes.

“One of the things I got out of this presentation was that the city is doing a fairly good job of addressing the pension liability,” said City Councilmember Chris Albertson, who, as retired Petaluma fire chief, collects a $152,000 pension from the state. “To be clear, this isn’t a City of Petaluma problem alone. The city hasn’t caused the shortfall because of malfeasance. It’s a problem for everyone in the CalPERS system. After hearing from Mr. Bartel and seeing the numbers, it appears what we’re doing is working.”

Bartel strongly agreed.

“It’s really important for everybody to understand that,” he said about how the shortfalls are common throughout the state.

(Contact Elizabeth M. Cosin at elizabeth.cosin@argus-courier.com)