By Steven Tavares.
Last year, San Leandro’s tab for unfunded liabilities over the next 30 years was $158 million. The City Council Monday night moved forward a strategy directing more of its growing revenues over the next five years to lower that debt.
“It’s such a big number sitting out there,” San Leandro Mayor Pauline Cutter said of the city’s unfunded liabilities. An estimate of the city’s pension debts for 2015 will be released later this year, said a city staff report.
The plan tentatively approved by the council aims to set aside $5 million over the next 5 years for reducing its pension liabilities. Known as the Prioritization Unfunded Liabilities Liquidation (PULL) Plan, it would also lower the city’s 20 percent emergency reserve to 16.7 percent and redirect the difference toward paying down pension liabilities. The higher percentage is somewhat higher than other local cities. In addition, the 16.7 percent threshold is often recommended and the limit needed for the city to maintain its credit rating, said Finance Director David Baum.
The plan also seeks to apply half of any budget surpluses in coming years to the debt along with half of the proceeds from the sale of any city-owned properties. For instance, City Manager Chris Zapata said the city’s share from selling the closed CVS property on the corner of Davis and East 14th Streets could be worth $500,000.
“Five million in five years is something that is doable and it’s important–with these various ways of getting there,” said Cutter. “It’s kind of like that number that floats around in the sky, but as long as we’re actively, aggressively doing something to it and making sure we make our payments, I think we’re going to see we’re making some traction.”
The idea behind the PULL Plan, said Baum, followed an announcement from the California Public Employees Retirement System (CalPERS) for a $1.15 million surcharge on city public safety plans. San Leandro has far fewer active participants in the plan relative to those currently receiving pension benefits, said Baum, which led to San Leandro being the hardest hit by the surcharge in the entire state.
The city appealed to CalPERS and was later offered a reduced payment schedule for the first three years, said Baum. It also allowed the city to pay off its debt in 21 years instead of 30, he added, and save the city $24 million. But, San Leandro declined the package because of much higher payments beginning in year four. “It really didn’t make sense for us to take that risk,” said Baum. Instead, a strategy was sought to pay down debt in early years when the city is flush in revenue. Like today.
The City Council reacted favorably to the pension strategy during Monday’s night meeting. Up until four years ago–in the midst of the Great Recession–the city was not paying its Annual Required Contribution (ARC) to unfunded liabilities. Starting last year, it pledged to fund the full ARC through 2016.
With interest rates at all-time lows and CalPERS rates somewhat volatile, Councilmember Benny Lee added, “It highlights the importance of us trying to pay down it earlier because we cannot predict future in terms of the rates.”