Del Mar recognizes rising pension costs, seeks solution
By Claire Harlin
firstname.lastname@example.orgAs pension costs increase, threatening public services and compromising general fund budgets, Del Mar is looking into how it can maintain long-term fiscal health and reduce the liability on the city.
Jim Eckmann, the pension subcommittee chair, said he has served on seven different committees and this is the “single largest financial situation” he’s faced in his years as a Del Mar resident. Earlier this month, he delivered a disheartening report to the City Council, who agreed that pensions are a serious issue, and directed city staff to begin looking for a solution.
“I’d have to characterize this by saying we’re standing on a burning platform. Some would say it’s not burning so bad, and some would say it’s burning really bad. I know the council has a lot of priorities to juggle and so does staff, but I would urge the council to move this to a front burner,” Eckmann said.
Last June, the Del Mar City Council expanded membership of the city’s finance committee from seven to nine members in order to address this issue, and analyzing the city’s long-term pension obligations was made a priority.
Under the California Public Employees’ Retirement System (CalPERS), there are three defined benefit pools in Del Mar — firefighters, lifeguards and “miscellaneous,” meaning all other city employees.
City employees by statute contribute about 8 percent of compensation to CalPERS and that is a fixed rate, meaning that the city bears the risk in the event of an increase. Del Mar’s pension costs have increased from 3.5 percent in 2002 to 11 percent in 2010. This translates to a 23 percent increase in payroll for miscellaneous employees, a 17 percent increase for lifeguards and an increase of nearly 50 percent for firefighters.
Eckmann said the significant increase for firefighters is due to the age of the firefighters employed by the city.
Eckmann estimates that Del Mar’s funding levels are around 65 percent for the city’s benefit pools, which would be “well below at-risk if we were dealing in the private sector,” he said.
“If we were to incorporate the benchmark 6.2 percent, we are at a point where private pensions are in distress,” Eckmann said.
As of last June, the most recent numbers CalPERS has released, benefit pools are underfunded collectively by about $13 million, he said, and an additional $3 million is owed to CalPERS under a debt called “side find liability.” This is about one and a half times the city’s revenues, he said.
Eckmann added that a Hoover Commission report released last April suggests public pension costs for cities will jump 40 to 80 percent and remain at those levels for decades.
The city saves about 6 percent by not participating in Social Security, and it does not provide health benefits to retirees.
Paying off the side fund debt and floating pension costs are options, said Mayor Carl Hilliard, adding that the city has frozen employee salaries for the past several years.
“We’ve been sensitive to the growing liability and concern that we all face, and that this may get out of hand,” Hilliard said.
Councilman Filanc said city staff should bring a “laundry list” of options to the council, and then have public discussion.
City Councilman Don Mosier said spending more time on getting the numbers right, amid a changing economy, would not be a good exercise.
He said a better idea would be to look at what the options are for the future, especially in regard to new hires.
He said what needs to be examined are “the best options for a city that has done an excellent job of anticipating this problem and is in better shape than most organizations.”
“What really worries me are the few cities going bankrupt and our liabilities growing even faster than they should because the state and other municipalities haven’t addressed the problem well,” he said. “That’s out of our control. All we can do is the best we can do, plan for our employees and use the expertise we have here in town to come up with potential solutions that will work for us.”