*This page will be updated as the process to complete the Fiscal Health Response Plan progresses.
Like 3,000 other member agencies in CalPERS, the City is facing significant financial challenges ahead due to increased pension costs. In San Luis Obispo, CalPERS costs will more than double in 10 years, from $7.8 million in 2014-15 to $19 million in 2024-25. The City is legally required to meet the CalPERS costs, and the Fiscal Health Response Plan will detail the path forward to offset the CalPERS increases and close the gap, which is projected at $8.9 million in the General Fund & Enterprise Funds over the next three years.
Potential Plan Components
There is no single solution to this financial challenge and staff considered several components in developing the Fiscal Health Response Plan. Those components, guided by community and staff input and directed by Council December 12, will include a balanced, three-pronged approach to closing the $7.5 million gap in the general fund:
- 30-40% through Operating reductions and new ways of doing business
- 20-30% through Employee Concessions
- 30-40% through New revenue sources
The Enterprise Fund solutions totaling $1.4 M will be met through various strategies unique to each fund. The primary reliance will be on doing business differently and employee concessions. Enterprise Fund revenues are those revenue projections based on approved and historic rates and revenue growth trends.
Why have costs gone up?
A variety of factors have contributed to the increased costs, including losses from the Great Recession, retirees living longer, and past decisions around employee benefits, which are largely out of the City’s control. Most recently, CalPERS adjusted its investment strategy toward more conservative investment assumptions, and decreased the expected rate of investment return, further increasing costs.
Can the City exit CalPERS?
While CalPERS is the driver for the current fiscal challenge, it is not practically feasible for the City to leave CalPERS. To exit CalPERS, the City would be required to meet its projected worst-case financial obligations within 30 days of the time of separation. That obligation is currently estimated to be between $377 million and $495 million. There are other legal barriers to reducing benefits for current employees and retirees.
What has the City already done to address costs?
The City has taken steps in recent years to reduce its pension obligation.
- In February 2017, the City Council voted unanimously to activate its Fiscal Health Contingency Plan, which provides a framework for responding to adverse budget circumstances. In keeping with the Fiscal Health Contingency Plan, a “hiring chill” limiting new hiring to personnel deemed essential to City operations, is presently in effect.
- Approximately 40 percent of current City employees are in 2nd- and 3rd-tier pension plans; both cost the City less and feature reduced benefits.
- Since 2014, the City has made lump-sum pre-payments toward its unfunded pension liability totaling $2.74 million.
- Additionally, since 2012, the City’s employees have agreed to contribute more of their own money to the pension funds. Unlike what happened in other cities, City employees did not receive offsetting pay increases to compensate for that new cost-sharing arrangement.
What is the City doing now to address costs?
- Continued implementation of the Adopted Fiscal Responsibility Philosophy
- Includes: informed decision making, shared responsibility, increased transparency, aligned investments, diversified and aligned revenue sources, long-term unfunded liabilities, continued efficiency and effectiveness.
- Activation of the Fiscal Health Contingency Plan
- Includes a hiring and travel “chill”
- Adoption of the 2017–19 Major City Goal: Fiscal Sustainability & Responsibility
What is the timeline for developing the Fiscal Health Response Plan?
Inform community and staff
City Council Meeting to consider process to develop a plan
City Council Meeting for direction on how plan components are to be distributed
January – March 2018
Develop components of plan based on Council direction, receive additional input from community and staff
Plan adoption at Strategic Budget Direction
Budget adoption consistent with plan
Where can I find more information?
Participate by attending City Council meetings or online at slocity.org/opencityhall
Contact us at firstname.lastname@example.org
Follow this page for updates.