Petaluma ‘looked under every rock’ for pension crisis solution
Petaluma will continue to be swamped by a growing unfunded pension liability for at least the next decade, city officials said Monday.
Like a family with high credit card debt, the city is looking at creative solutions to ease the budgetary burden.
As with many cities around the state, Petaluma faces a pension crisis created more than 20 years ago by doling out plush employee benefits backed by under performing investments. At a time when the California Public Employee Retirement System was flush with cash, municipalities offered workers plum benefits in order to retain and attract employees away from the private sector that included a burgeoning technology industry.
But as those employees start to retire — and live longer — and CalPERS investments fail to undergird the system, cities like Petaluma are on the hook for an increasing share of the burden, city officials said.
Despite negotiating less expensive benefits with current employees and other pension reforms Petaluma has undertaken, current retiree benefits will continue to eat into the city’s budget, leaving less money for street maintenance, public safety and other city functions, Assistant City Manager Brian Cochran said at a more than 2-hour workshop on Petaluma’s pension crisis.
“CalPERS and public pensions in general seem to generate regular news headlines as many of us may read from time to time and often in conjunction with municipal budgets and fiscal challenges,” Cochran said at the workshop, part of Petaluma’s yearlong fiscal sustainability effort. “There’s no escaping the fact that the pension line item is a significant cost of our budget overall.”
Cory Garberolio, Petaluma’s finance director, said that the city’s PERS expense is $9 million this year, and is expected to increase by $1.5 million each year until 2032. The increase is despite measures the city has taken to reduce annual pension costs by $1 million per year, she said.
“The city has taken all legally allowable steps to address the rising PERS cost,” she said. “Over the past decade, we have done many things to address the rising cost.”
Those measures include implementing a lower tier of benefits for current employees in 2010, negotiating with employees to contribute a larger share of their pension costs, and a one-time city contribution of $7.5 million to pay down the unfunded liability in 2018. The city also kept benefits modest compared with other cities and froze salaries between 2009 and 2016, Garberolio said.
But those belt-tightening measures also have come with a cost, city officials said. Employees have left Petaluma for better pay and benefits in neighboring cities, resulting in increased onboarding costs for new hires. The fire department, for example, has nine vacancies and each new hire costs about $100,000 to bring on board, Garberolio said. The department also incurs significant overtime expenses when vacancies are unfilled.
“We’ve lost at least two or three (firefighters) that I can think of in the past year to other agencies for, I’m assuming, more pay or better benefits or whatever the case may be,” Councilman Gabe Kearney said. “So that’s a significant cost we’re incurring as a city because we froze salaries and did not keep competitive with cities when it comes to staff recruitment.”
Petaluma does have options to deal with its unfunded pension liability. Doug Pryor, vice president of consulting firm Bartel Associates, said the city could issue pension obligation bonds.