The Sacramento City Council was afforded its first look at a new consolidated report of the long-term debts that could potentially impact budgets not only this year, but through the next 30 years. The intent wasn’t to shock, according to city manager John Shirey, but with a total debt burden of more than $2 billion, that might very well be the best word to describe the debts.
“There’s nothing in the report that isn’t already public information, but some body would have to be pretty skilled and pretty adroit to pull all of that information out of various places,” said Shirey in his opening statement introducing the report. “What is really new is that we are giving this to you for the first time (in) one report, in one place so its compiled so you don’t have search through the consolidated annual report.”
The debt burden report includes costs associated from previous debts, ongoing post-employment benefits, and future costs. The largest among those debts are the unfunded post-employment liabilities, which total $950 million, followed by general indebtedness of $823 million, and future costs of $167 million.
During the public comment, Greg Hatfield, the Executive Vice President and Policy Director for Eye on Sacramento, commended on the report, saying that his group had spent more than the last year trying to piece together the information that the City presented.
“This is kind of a credit report to the Council tonight,” said Hatfield. “You aren’t in the tank, but you aren’t really great.”
If assigning a credit rating, Hatfield said the City would be somewhere around 600.
The City currently spends roughly $80 million per year servicing its debts. If the City assumed no more debt, it could retire all balances for bonds, swaps, leases, and loans in 2035. However, ongoing capital improvements are often funded via bonds and borrowing, and the City’s lease-to-own programs helps keep initial costs for municipal operations down.
In the current market, one where municipal debt is viewed as less safe than it was during boom years, future borrowing will likely be more expensive and need more security than simply General Fund backing. Dedicated sources of revenues – such as those arising from capital improvements to the City’s wastewater system – will help secure lower rates and better market reception for future debt issuance.
As for the unfunded liabilities for post-employment, the size of the funding gap grew by $40 million due to the inclusion of retiree medical benefits, which are 100% unfunded. Despite years of offering to cover some of the medical costs for long-term retirees from the City, no program was put in place to build a funding trust account.
Instead, the program has operated on a pay-as-you-go basis. When actuarially calculated, building a trust account to compensate for the gap will require payments from the City’s general fund of $23.9 million above the $18.9 million already calculated as a normal cost in 2012/13.
Depleted city revenues will make simply absorbing a line item of $42.8 million virtually impossible.
In an interview with the Sacramento Bee, Shirey said he would pursue concessions from labor groups to help bring down the unfunded liability. It remains to be seen if this report will serve as the opening salvo in the latest round of budget negotiations for the City.