News

Pension contract tackles city's growing problem

City's agreement with CalPERS would require employees to contribute part of city's share

How do you solve a problem so vast that it's practically immeasurable?

That's the question the Palo Alto City Council continues to struggle with when it comes to the city's pension liabilities, a fluctuating burden that by most estimates ranges somewhere between $300 million and $800 million. During budget discussions in May, members of the City Council characterized it as the city's most massive budget issue, with Greg Tanaka saying the total owed to future retirees "dwarfs everything else by a lot."

The current city budget pegs the pension liability to be at about $330.1 million, though many expect it to rise steeply in the coming years. The California Public Employees' Retirement System (CalPERS), the massive public fund that manages the city's pension and health benefits, has recently decreased the expected rate of return from its investment portfolio from 7.5 percent to 7 percent, a change that will be phased in over three years starting in fiscal year 2019 and that will further accelerate the city's already rising pension costs.

To brace for the looming pension storm, the council has been pursuing two strategies: having employees pick up a greater share of pension contributions and creating what's known as an IRS Section 115 Pension Trust Fund to offset major fluctuations down the road.

On Monday, the council will address the former when it amends its contract with CalPERS. The new agreement calls for all bargaining units in the public-safety departments (which includes the Palo Alto Police Officers Association, the Palo Alto Police Managers Association, the International Association of Fire Fighters and the Palo Alto Fire Chiefs Association) to pick up 3 percent of the employer pension contribution as of fiscal year 2018.

For the roughly 600 workers represented by the Service Employees International Union, Local 521, the share of employer contribution they would have to pay would start retroactively at 0.5 percent as of Dec. 1, 2016, and then increase to 1 percent as of Dec. 1, 2017. The "management and professionals group" of about 200 employees is expected to adopt a similar arrangement after the SEIU deal is approved by CalPERS this fall.

The approach is a reversal from Palo Alto's traditional practice in which the city covered both its own and employees' CalPERS contributions. The burden began to slowly shift during the 2009 economic downturn, when a shrinking budget and growing expenses prompted the council to pursue new agreements with its labor groups so that employees would pay their own share of the costs and, ultimately, a small portion of the city's. The contracts included tiered pension plans, with new and recently hired employees belonging to a tier with less generous benefits.

In June, the council approved a budget that calls increases to employee contributions "an important tool to help the City contain pension costs." But even so, no one expects the Monday action to change the underlying problem. Collectively, the higher employee contributions are expected to lower the city's annual pension costs by about $1 million (from about $24.6 million to $23.6 million) -- hardly a panacea for a problem that continues to grow thanks to CalPERS' revisions.

For the council, shrinking the pension liability is among the most pressing and challenging priorities. And for Councilman Eric Filseth, chair of the council's Finance Committee, it is a problem that is gradually becoming less abstract and more tangible, with real impact to residents.

Just before the council adopted its budget on June 27, Filseth observed that the city's public pension and health liabilities are both growing much faster than revenues. The budget included an additional contribution to the Section 115 fund, raising its balance to $3.5 million.

"We've known for some time that eventually those liabilities would start to impact our regular operations, competing for dollars with aquatics, safety, tree trimming and all other things we spend time on," Filseth said. "That time has arrived. Just like with credit cards, as our overall liability grows, the minimal payment also grows."

In addition to creating the pension trust and reaching new agreements with labor, the city is also pre-paying the entire annual employer-contribution amount -- a practice that the city expects to save $813,000 in the current fiscal year (which began on July 1).

While these steps have had some impact, overall pension costs continue to rise. This year's budgeted $23.6 million is an increase of 11.4 percent (or $2.43 million) over 2017. This contributed to the broader trend of rising employee costs: In the General Fund, salary and benefit costs have gone up by 8.1 percent or $9.4 million, between the 2017 budget and the newly adopted one.

Tanaka believes the city should go even further in addressing the liability problem. As a member of the Finance Committee, he has repeatedly advocated for reducing employee costs and during the budget adoption, he voted against both the new public-information officer position (the only new position in the General Fund) and against a plan to retain a position in the Office of Sustainability. Both proposals sailed through despite his objections.

He also argued that the city should be more explicit in both articulating the pension problem in its budget documents and coming up with solutions.

"We're chipping away at $3.5 million a year, but it's such a small amount and such a big debt," Tanaka said at the June 27 meeting. "We are putting in such a relatively small, minimal payment that I don't think we're doing justice to our constituents or retirees.

"It's important that we realize that there is a part of our budget that's not accounted for -- the unfunded liability."

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Comments

31 people like this
Posted by Mark Silverman
a resident of Menlo Park
on Aug 8, 2017 at 6:16 pm

Simple. Make it a 50/50 contribution. Working for the state/county/city has its unique perks and many will concur that many government employees don't work that hard to begin with.

A co-funded retirement program shared by both employee/employer would be the most equitable format to run with. Just ask anyone who works in the private sector.

For the unions to seek/demand anything more is downright unreasonable.


36 people like this
Posted by Bob gleason
a resident of Old Palo Alto
on Aug 8, 2017 at 6:37 pm

Really.. where has everyone been over the last 10 years.. nice to see the awaking occur. Waiting for the tax increase to enable ex-employees to enjoy the $3m the rest of us would need to put away to get the same payout..


48 people like this
Posted by Caleb
a resident of Downtown North
on Aug 8, 2017 at 7:14 pm

Gee, these city workers are going to pay 1-3% toward their pensions. What a horrendous sacrifice they're being forced to make. A tear is coming to my eye. Oh, wait, I have to make 100% of the contributions to my retirement plan.


38 people like this
Posted by Glen
a resident of College Terrace
on Aug 8, 2017 at 7:27 pm

I give credit to Greg Tanaka for telling the truth:

"It's important that we realize that there is a part of our budget that's not accounted for -- the unfunded liability."

And still we go merrily along spending money on pretty bike bridge concepts, railroad crossing guards, failed composting plants for our sewage sludge, protecting a trailer park that is a mess, sustainability officers and so much more. We can only blame ourselves.


45 people like this
Posted by Ryan
a resident of Another Palo Alto neighborhood
on Aug 8, 2017 at 7:37 pm

A Firefighter retires in their mid fifties at the 90% of their yearly pay. There pension contribution is used up in the first 10 years of their retirement. The city is "on the hook" for the remainder of their 90% of yearly pay until they die or until their spouse dies. With firefighters living longer these days (25-30 years), you can see the "big picture". Most (if not all) cities cannot handle these under funded pensions.


33 people like this
Posted by Eric Filseth
a resident of Downtown North
on Aug 8, 2017 at 8:04 pm

Just as a clarification, the $330M unfunded liability is for Pensions only. The City has a second unfunded liability associated with Retiree Healthcare, which as of June 30, 2015 was $156.2M as per the City’s 2015-16 Comprehensive Annual Financial Report. So the official total unfunded liability is about $500M.

This number is calculated and reported by CalPERS, the state pension agency which Palo Alto is a member of. $500M a very large number. Yet it is known to be significantly understated, since CalPERS calculates these values assuming member pension funds will see an average investment return of 7.5% per year. Essentially all credible independent observers believe this to be unrealistic; an independent study commissioned by CalPERS themselves last year recommended 6.2% (CalPERS did not accept the recommendation).

6.2% vs 7.5% may seem like a small difference, but over time it compounds to very large amounts of money. We don’t know exactly what our combined unfunded liability would be at an ROI of 6.2% --- it’s a complicated analysis that we have not yet done comprehensively --- but there’s evidence the total would approach $800M. This is where the $800M estimate comes from.

There are also some experts who believe that a government’s aggregate pension and health liability should properly be discounted at an even lower rate than the long-term investment return; that instead it should align to the City’s cost of capital or possibly even the T-Bill rate. If these folks are right, then Palo Alto’s unfunded pension and retiree health liability would be significantly larger even than the $800M.

Finally, I hope it’s clear that the problems and unrealism with our pension and health accounting stem from CalPERS, the state organization. I personally have found the City’s own Finance team to be excellent, and doing a highly competent job of working through the state’s flawed system.


2 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Aug 8, 2017 at 8:13 pm

@Eric --

Could you explain how CPA health accounting is linked to CalPERS?

Thanks.


11 people like this
Posted by Eric Filseth
a resident of Downtown North
on Aug 8, 2017 at 8:58 pm

@Joe,

I’m sorry I can’t give you as good an answer as I’d like. It took me a terribly long time to figure out just the pension accounting, and the OPEB (“other post employment benefits,” basically healthcare) accounting, I just don’t understand as well. There's a somewhat-detailed discussion of it in the Notes section of the CAFR.

I believe it is organized as a trust administered by CalPERS, and has a similar but separate actuarial calculation to pensions. The OPEB ROI assumption is currently 7.61%. One other component of the OPEB calculation, but not the pension calculation, is an estimate of the rate of increase of prevailing medical costs; its current projections are in the 5-8% per year range.

Like the pension obligation, the OPEB unfunded liability includes a required annual contribution intended to amortize the liability over several decades. But also like the pension obligation, this payment isn’t enough to reduce the liability in reality, because it’s based on the ROI overestimate. So the liability continues to grow.


7 people like this
Posted by Stan
a resident of another community
on Aug 8, 2017 at 9:33 pm

Palo Alto and other cities and government employers with big unfunded pension promises should take houses by eminent domain and then sell them for a profit. That way, pensioners can their promised windfall and residents could get what they deserve for allowing government entities to spend money as if it grew on trees.


18 people like this
Posted by Bob
a resident of Duveneck/St. Francis
on Aug 9, 2017 at 8:53 am

@Caleb,

To be fair, the cops and firemen are already paying 9-10% of their salary into CALPERS so the additional 3% will bring it to 12 or 13%. Whether 12 or 13% is enough is a different question but that's the actual number.

My experience is that most of us in the private sector are not putting 12-13% of our money into retirement accounts. Maybe we should but we don't. The social security tax rate is 6% or so but it maxes out at like $7K a year. The government employees don't pay that, but they also don't get social security benefits either.

Anyhow, I'm all for the city being responsible with my tax dollars, but I'm not sure it's as simple as "those greedy public employees" having it easy while the rest of us struggle in the private sector. I can afford to live in Palo Alto, so I must admit to feeling a bit conflicted about begrudging some cop or fireman their pension.




14 people like this
Posted by al munday
a resident of another community
on Aug 9, 2017 at 10:28 am

its about time gov't employees kick in like in private sector...the percentage is low. [Portion removed.]


19 people like this
Posted by dtnorth
a resident of Downtown North
on Aug 9, 2017 at 10:54 am

They should also have them kick in more for their health insurance and pay for parking like the people who live in dtn north have to do and they own homes. I would also say going forward in hiring new employees they should have a different benefit package.


38 people like this
Posted by commonsense
a resident of Evergreen Park
on Aug 9, 2017 at 10:55 am

The biggest problem here is that the cities justify increased pay and benefits by showing that other cities pay as much or more. This is a self defeating situation where public employees will continue to be over paid and allowed to retire well before a "normal" retirement age. If someone serves a good twenty or twenty five years, they should be recognized with a ribbon, not allowed to retire and get income off the rest of us for the rest of their lives, which now is probably well into their 90s


35 people like this
Posted by Barron Park dad
a resident of Barron Park
on Aug 9, 2017 at 11:00 am

Major kudos go to Greg Tanaka for being a dog with a bone on this topic. It has been ignored for years by the City Council. Wake up folks, this is a big problem!

I'm not sure I accept Eric Filseth's sentiment up above that this is merely a CALPERS accounting problem. He wrote: "I hope it’s clear that the problems and unrealism with our pension and health accounting stem from CalPERS, the state organization. I personally have found the City’s own Finance team to be excellent, and doing a highly competent job of working through the state’s flawed system."

I think the real problem is not paying sufficient attention to escalating salaries and pension benefits that our local government employees receive. A hard re-examination is in order.


33 people like this
Posted by anon
a resident of Leland Manor/Garland Drive
on Aug 9, 2017 at 11:06 am

I have worked for both city and private sector. I find it rude and tiresome to hear that city employees are lazy and get paid a fat paycheck for nothing.

1. Firefighters and police put their lives at risk to help YOU. How about THANK YOU?
2. Yes there are some lazy city employees, but I've also seen that for years in the private sector!
3. Private sector employees put money into their 401K but you often get a match from your employer...
4. Private sector gets social security benefits
5. With the exception of those at the top of the city ladder, the private sector is paid at a much HIGHER level.
6. I am very sorry for city employees that have to put up with the constituents that think they can be so rude and lump all city employees as lazy idiots. Maybe you should try answering the phone to someone who considers you trash and see how you feel at the end of the day.

Just because you live in Palo Alto doesn't mean you are entitled to be nasty to those who drive in from miles away (because their salary isn't enough to allow them to live nearby) to make your community worth living in.

Stop and think before you lash out at those patiently sitting and working for YOUR benefit.


24 people like this
Posted by Cash Cow
a resident of Downtown North
on Aug 9, 2017 at 11:08 am

Most of us would gladly trade Social Security benefits for government benefits since the most you can make on SS is about $3500 a YEAR. Also, if you're self-employed you pay both your share AND the "employer's" share so consultants / contractors in this "gig" economy are already paying 15%.

Still waiting for the city to decide that one single employee doesn't merit the maximum raise.


31 people like this
Posted by Annette
a resident of College Terrace
on Aug 9, 2017 at 11:25 am

Annette is a registered user.

I am normally baffled by what Tanaka says and does, but in this instance it sounds like he tried to encourage a sensible approach to arguably unnecessary staffing. It is more than a little absurd that a city our size has as robust a management staff as we do. Yet still needs to spend $ on consultants. And then there's the salary issue. We pay our City Manager more than we pay our Governor. By a lot. I understand that we Palo Altans are a demanding lot, but it's time we made some sensible, supportable, sustainable changes at the local government level. Or face the sorry fact that we are nurturing an impossible financial burden.


18 people like this
Posted by Unfunded Pensions
a resident of Old Palo Alto
on Aug 9, 2017 at 11:26 am

@bob
But the private sector does not get 90% of their yearly pay in SS benefits. This payout is going to bankrupt most cities.


6 people like this
Posted by Chris
a resident of University South
on Aug 9, 2017 at 11:27 am

Cash Cow,

You are off by a factor of 10 on SS


13 people like this
Posted by Cash Cow
a resident of Downtown North
on Aug 9, 2017 at 11:37 am

@Chris, you're right. Sorry about that. $35,000 a YEAR.

And that's Before we pay our own health insurance / Medicare so subtract about $10,000 a year for private health insurance and/or $4200 for Medicare (excluding co-pays/deductibles) and our inflated utility bills that subsidize the General Fund.


19 people like this
Posted by Stew Pid
a resident of Community Center
on Aug 9, 2017 at 12:58 pm

The problem with a defined benefit plan is that you don't know how much you're going to be paying someone in the future, for work they're doing today. The cost of fixing a pothole is undefined.

We would never take on that type of financial liability when it comes to fixing our own homes. Yet the city does that on a daily basis.

One change we could make today is to replace defined benefit plans with a defined contribution plan, at least for new employees, and possibly for future benefits of current employees (if legally possible). We could make the defined contribution plans generous, but at least our liability would be defined. And we could plan with more certainty.

Of course, the first elected official who takes this stand is going to be confronted with our wonderful unions killing them with negative ads and innuendo in the next election. So it's really up to the electorate to get educated and hold the line against the unions.

Oh, and I don't think firemen and police are underpaid. If they were, they would walk.

We're enslaved by unions.


2 people like this
Posted by anon
a resident of Leland Manor/Garland Drive
on Aug 9, 2017 at 1:17 pm

cash cow...you are off again. Medicare is about $100 a month. That's $1200 per year. Depends on what supplemental insurance you take - which could add up. But don't make it sound like Medicare itself if $4000! Of course if you go with the most expensive supplemental the cost is about $3100 so that adds up to about $4000 total. Not 10k like you say.

How do you keep inflating things?


16 people like this
Posted by Midtown Resident
a resident of South of Midtown
on Aug 9, 2017 at 2:16 pm

I think the City should take the lead in this pension mess and do the following:

1. Declare bankruptcy and have all existing pension liabilities reduced to an amount that the City can actually cover.

2. Move to a defined contribution plan for all new hires, this is the only fiscally viable retirement program.

The City, like every other municipality in California, just keeps kicking the can down the road while residents continue to suffer through reduced services and mounting pension liabilities. Pull the Band-Aid off and let's fix this problem now!!


12 people like this
Posted by Jeff
a resident of another community
on Aug 9, 2017 at 2:53 pm

I don't see anywhere in the article where city employees are balking at the idea of contributing more to the pension fund. Believe it or not, we're all invested in the success of this city even if we can't afford to live here.


6 people like this
Posted by Gale Johnson
a resident of Adobe-Meadow
on Aug 9, 2017 at 3:02 pm

I read all the comments and just tossed some aside because of their emotional responses...one liners...with no thought or logical reasoning behind them. I looked for responses that offered viable solutions. There were few, and most of them will be difficult to implement. There will be a big fight with unions, all the way, over this.

I was most impressed by the article giving Tanaka's take on the issue. I didn't vote for him, and his early appearances at council meetings seemed to validate that decision, but, he is a businessman, has a business mind, and knows his dollars and cents. That was clear from what he said and what he proposed in council meetings regarding city positions that he felt didn't need to be filled, and his analysis of the severity of the pension problem. Keep up the good work on that, Greg.

But, the prize goes to Eric Filseth, also a businessman, and successful one (that's important to note). He understands and appreciates the significance of the problem, better than anyone else on council. I did vote for him in the previous election. We need him again.

My observation and analysis of our CC members, without naming them: Some are more focused on social issues...housing, homelessness, environmental, ADU's, saving retail, etc. Others are more knowledgeable and astute about the budget problems. They are the numbers people. I don't want to guess at the degrees of the first group, but I doubt if their curriculum's included many courses in economics, accounting, and finance. And that's okay. Education, political science, and all the available liberal arts degrees are good. We need a well rounded community. And doctors and lawyers are welcome into that community as well as the engineering techies. We need them all to make it work.

CalPERS ROI? Where are they investing their money? I'd like to get in on that. Risky investments to claim that kind of return? Stop it! Give us the real hard facts, ones we don't like to hear maybe, but ones we need to hear! Cities need to know the real story so they can make some honest projections in dealing with their pension and health care liabilities.

There was a good article in the other paper, Daily Post, about retail in PA. I commented on that a while ago, online, regarding the property owner's appeal for not retaining the retail status of the location of the former pet food store. Just more 'feel good' decisions made at council re retail, and hopefully, to get support and votes from us old folks who really knew and loved retail in our day...oh so long ago. That was real mom and pop retail that doesn't exist anymore and will never come back. So, scratch that from your campaign list of promises.

There are many things to campaign on in the next election cycle, but saving retail shouldn't be one of them...unless you want to lose. And for all the talk about providing housing for many of our commuting tech workers, as well as low income people...yo might not want to run on your record so far on those issues. There will be a lot of dancing and prancing going on next year.

Of course saving Buena Vista will be raised up as a great accomplishment, but don't tout that too soon. There is a lot of work ahead to make it a final reality to the pleasure of all that are involved. Some of the current residents will be disappointed and will have to leave.

I've been yakking long enough.


8 people like this
Posted by Stretch
a resident of another community
on Aug 9, 2017 at 3:19 pm

Funny, I don't remember the firefighters getting 90% of their salaries. CalPERS retirement is figured by years worked and age, on a graph, and the percentage paid was determined by negotiations. Where are you getting the 90%, was it Eric? After repairing gas leaks for 25 years, using a 92 pound jackhammer and shoveling dirt and muck, doing stand-by and working all hours to keep people safe, I dare anyone to call me lazy!


6 people like this
Posted by Eric Filseth
a resident of Downtown North
on Aug 9, 2017 at 3:27 pm

Per @Barron Park dad

I'm not sure I accept Eric Filseth's sentiment up above that this is merely a CALPERS accounting problem. He wrote: "I hope it’s clear that the problems and unrealism with our pension and health accounting stem from CalPERS, the state organization.”

-------------------------

I hope I’m not being over-nuanced; just trying to focus on the accounting here and not stray into other policy. The Unfunded Liability itself, and our Accounting of it, are two different things, though obviously they’re connected.

Our pension and health accounting has serious errors, and as I said, I view CalPERS as the root of this; I just want nobody to throw rocks at our own city Finance team, whom I view as working hard on all our behalf.

The Unfunded Liability itself is real, not an accounting vagary, and exists because we ourselves signed, and continue to sign, pension and OPEB contracts that we don’t have money to pay for. CalPERS certainly played a role by misleading its member cities and other government agencies as to the true costs of those contracts --- a practice many would argue continues today. But the City of Palo Alto accepted CalPERS’ accounting, and negotiated contracts based on it.


25 people like this
Posted by Annette
a resident of College Terrace
on Aug 9, 2017 at 3:58 pm

Annette is a registered user.

Food for thought:
Palo Alto City Manager's pay: $433,482
Governor's pay: $190,000
President's pay: $400,000 (+169k for expenses, travel + entertainment)

That we pay our City Manager what we do is unjustifiable given the above. I am pretty sure Jerry Brown has greater responsibilities. Voters need to pay attention to this sort of thing and not vote for incumbents who have supported this unless that candidate has a compelling strength that offsets such fiscal irresponsibility. I cannot think what that would be, but do want to leave room for the exception.


14 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Aug 9, 2017 at 6:56 pm

> Funny, I don't remember the firefighters getting 90% of their salaries.

The following document about public safety employees retirement benefit is from the CalPERS web-site:
Web Link

There are a number of plans that a jurisdiction hiring public safety employees can choose, including 3% at 55. If an employee is on a 3% at 55 plan and retires at 30 years, then his/her exit salary would be 90% of his/her final year's salary (and any other spikes added in by the jurisdiction).

Palo Alto HR has, in the past, indicated that most employees retire around year 27, but this average employment duration is subject to change over time.

What’s not obvious to most people is that CalPERS increases the payouts of retirees with a COLA that increases the payout year after year. If the employee retires at an early enough age and lives long enough, it’s possible that person could make more in retirement than he/she did on the job.

Does it make sense to pay someone who is in his/her 80s twice as much as he/she made thirty years earlier when he/she was actually working for the jurisdiction?


15 people like this
Posted by Ryan
a resident of Another Palo Alto neighborhood
on Aug 9, 2017 at 7:27 pm

Thanks Joe. Even retiring after 27 years of employment with the city, the retiree would still receive 81% of their yearly pay. Then on top of the COLA's, an employee in their 80's would make more than 100% of their yearly salary from when they retired. How can the cities continue to pay these pensions out without going bankrupt? What other companies pay employees almost their full yearly pay when they haven't worked for that company for years? None that I know of.


9 people like this
Posted by Cash Cow
a resident of Downtown North
on Aug 9, 2017 at 7:28 pm

@Anon, technically you're right about Medicare Part A being only $1200 a year but don't forget about Part D (Drugs) and whatever supplementary insurance plan (B, F, whatever) which all still come to $4200 a year. And those fees keep rising each and every year until you hit a max age of 86 (or whatever).

And that's without Vision or Dental -- each of which adds about another $1,000 to the annual tab should you elect to pay for those plans, too.

So the figure is closer to $6200 if you try to duplicate your old private-sector plan. The only way you can get lower costs for Medicare -- so far as I know -- is via Kaiser Senior Advantage which is a mere $150 per month plus $100 for Medicare Pt A. (About $3,000 depending on your age.)

Why are you trying to minimize the costs that real people pay for Medicare? Or for non-Medicare private insurance plan still costs close to $12,000 for a SINGLE person.


11 people like this
Posted by Tough Love
a resident of another community
on Aug 9, 2017 at 7:34 pm

What Palo Alto and all other City?State Govt's REALLY need to do is

(a) to freeze ALL Public Sector DB Plan for the Future Service of all CURRENT workers. Yes, I know that's currently VERY difficult, but hopefully the cases before the CA Supreme Court will, by vacating the California Rule, make that (or something near to it) a possibility.

(b) if (a) is not possible, then a combination of Public Sector Plan changes (formula reductions, retirement age increases, Early retirement adj. factor increases, COLA elimination, etc.) that reduce the "value" of each year's new accruals by no less than 50%.

---------------------

NOTHING else will REALLY work .....PERIOD !



Like this comment
Posted by Paul G.
a resident of another community
on Aug 10, 2017 at 7:48 am

@Ryan, I'm pretty sure after an employee retires, their pension is funded by CALPERS only. The city no longer contributes (to CALPERS) for the retired employee. The city is still on the hook to pay their medical though, which is still an extremily high cost.
You seem to have some insight, I am curious to find out for sure.


Like this comment
Posted by Joe
a resident of Another Palo Alto neighborhood
on Aug 10, 2017 at 11:41 am

@Paul-G:

> I'm pretty sure after an employee retires, their pension is
> funded by CALPERS only

Theoretically, this is true.

What is also true is that if CalPERS money management does not generate enough money on a yearly basis to fund its obligations CalPERS will increase the contributions from each of its member jurisdictions. This has happened in the past few years--which has resulted in many members seeing increases in the contributions which have taken as much as 25% of their operating budgets to pay. And, if CalPERS were to ever "go bust", each jurisdiction would be responsible for paying the pensions of its former employees. While this is not likely, it is a possibility.


Like this comment
Posted by neighbor
a resident of Greenmeadow
on Aug 10, 2017 at 12:22 pm

@Bob -- a quick review of the article tells us that the city has been covering the employer AND employee PERS contributions, so your calculations are not correct. That they should pay in 1-3% means that the city is covering 10x that. As a State employee covered under PERS, our contributions to the retirement system has been close to 6% from my first day of hire over 20 years ago and we pay into Social Security as well. This means that ~11% of my pay goes into retirement benefits each month. If you look on the websites showing salaries, it appears that most firefighters/EMT employees make well over $100k/year, with many making over $200k/year. Not disputing the salary levels, but do believe that, given their compensation, they should cover more of their own retirement contributions.


2 people like this
Posted by Eric Filseth
a resident of Downtown North
on Aug 10, 2017 at 1:50 pm

CalPERS pays only the Funded part of the employee pension and health benefits, using the appreciated money the City and employees have together contributed into the City’s pension and OPEB funds.

However, the amount of money from both city and employee PERS contributions, even after investment appreciation, is nowhere near enough to fund the actual cost of retiree pension and health benefits. The gap is the Unfunded part, the subject of Gennady’s article here. This amount for Palo Alto appears to be $500-800 million, and is not covered by CalPERS. However, the City still contractually owes this amount to its retirees. So the money will presumably have to come from some combination of higher taxes, cuts in city services, and possibly the sale of city assets.


7 people like this
Posted by Joe
a resident of Another Palo Alto neighborhood
on Aug 10, 2017 at 2:13 pm

@Eric-F wrote:

> So the money will presumably have to come from some
> combination of higher taxes, cuts in city services, and
> possibly the sale of city assets

This, of course, is very true. What’s so frustrating about this situation is that year-after-year we (the public) and we (the City Council) talks a little about this, and then in the bat of an eyelid, we latch onto some other topic which might have some possibility of resolution—unlike this problem.

The last election seemed to be all about land use. While it’s a worthy topic, it by no means all that needs to be debated during an election cycle. Moreover, it’s hard to see from the performance of the individuals on the Council that very many of them understand the issue from the accounting level up to some sort of resolution level.

What would be nice (or necessary) is for the Council to set up a plan to explore all of the possible solutions, costing all of these solutions out to a 5%-10% error estimation. This exploration would include new parcel taxes, increased transfer taxes, increased impact taxes, and the sale of assets—which means selling off assets like the airport, the golf course and possibly some of the 4000+ acres of park and dedicated land owned by the city.

Without actually working through these paths to generate new revenue, all we are doing is kicking the can down the road for another generation to deal with. Let’s see if this Council can at least get a committee together, and start this work this year.


8 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Aug 10, 2017 at 2:45 pm

@Eric, what's being done to rein in city hiring and giving maximum raises to all employees?

RE "cuts in city services," don't forget about all the nickle-and-diming us by PA Utilities? We're STILL being charged a drought surcharge for a drought that ended in Feb. although it's been cut from $25 to $8. I believe the city has 22,000 utility customers and the 4 months of charging 22,000 household $100 netted the city $2,200,000, an amount that's now down to $176,000 even though the Utilities head said the surcharge would end last month. We don't get refunds for our $100 and the Utilities guys we've called out can't explain the charges, surcharges, etc.

My water bill rose $100 last month even though we're using less water and put in drought-tolerant plants. I just got through meeting with my gardener yet again about what can be done and he described all sorts of horror stories from his other customers and unpredictable water bills, one reaching $2,000 a month which the customer at least got cut in half.

Really, enough is enough.


12 people like this
Posted by Online Name
a resident of Embarcadero Oaks/Leland
on Aug 10, 2017 at 2:54 pm

PS: Isn't it time to raise some money from businesses via the business tax the CC killed last year? It's unfair to keep shifting the burdens to the residents, especially asking US to pay the commuting expenses for commuters to/from Palo Alto. that should clearly be paid by businesses, not by us!

Also, what's being done about perks like providing all govt. employees with free parking while demanding that residents pay for neighborhood parking and all the new parking fees and garages to accommodate the 4:1 commuter-to-resident ration.


2 people like this
Posted by PA Resi
a resident of Ventura
on Aug 10, 2017 at 3:52 pm

PA Resi is a registered user.

The article doesn't show the existing pension contribution rates for Palo Alto city employees (ranging 6.25-8% depending on the employee's hire date and pension formula).

This CalPERS contract change adds another 1%, resulting in employee contributions of 7.25%-9%. In addition, employees contribute more each year toward health care premiums.

Note: Palo Alto's city employees don't get social security OR paid parental leave.

City of Palo Alto labor relation documents are found at: Web Link


4 people like this
Posted by Abitarian
a resident of Downtown North
on Aug 10, 2017 at 3:52 pm

I concur completely with Online Name that it's long past the time when businesses should pay their fair share, across the board, including the costs of pensions, grade separation, etc.


2 people like this
Posted by Ryan
a resident of Another Palo Alto neighborhood
on Aug 10, 2017 at 4:26 pm

@Paul G
The city is responsible for making sure the retired and current employees receives his FULL pension until he/she and their spouse dies. With employees living much longer these days, you can see the unfunded pensions becoming huge. Remember that the employee pension contributions are used up by the 10th year of retirement. Also, people say "then why doesn't these cities get out of Calpers"? Because they would have to fund the pensions millions and millions of dollars to do so. I believe someone above mention that the city of Palo Alto needs to fund Calpers between 500 - 800 million.


5 people like this
Posted by R. Winslow
a resident of Crescent Park
on Aug 10, 2017 at 6:48 pm

Moral of the story: For a good retirement program with all of the perks, consider working for the city/county/state. Just put in your time and don't rock the boat or try to be visionary.


Like this comment
Posted by Joe
a resident of Another Palo Alto neighborhood
on Aug 10, 2017 at 9:08 pm

BTW--looking at the 2017-18 budget, revenues that can readily be attributed to PA residents is about 45% of the revenues. Businesses and non-residents make up the other 55% (more-or-less)


8 people like this
Posted by out of control
a resident of Another Palo Alto neighborhood
on Aug 10, 2017 at 9:35 pm

The problems run deep here in an out of control
city government which is destroying the City
financially, and at the same time the urban
environment and livability.For example, just a month or so ago the City installed yellow-laddered crosswalks at the intersection of Seale and Newell,
after the school year, which in itself probably made the intersection more dangerous because the
existing stop signs are at the next intersection
and should have been relocated to this intersection if it needed more control.From a traffic engineeering standpoint what the City did made no
sense.It became distracting and confusing. Then a couple days ago as part of the repaving of Newell the yellow crosswalks were stripped. So the traffic engineering Dept did not know the repaving was imminent,or didn't care So now they can come back and redo it. Any comments from Filseth about this?






4 people like this
Posted by BP
a resident of Barron Park
on Aug 10, 2017 at 10:32 pm

Palo Alto has way too, too many city employees. Years ago, a local lawyer ran ads showing how the number of city employees to residents was way over than that for all the local cities. I wish he would run those ads again.

We need a referendum to cut the number of city employees by 15-20%.


3 people like this
Posted by resident
a resident of Charleston Meadows
on Aug 11, 2017 at 6:37 pm

This is not a Calpers accounting problem. Calpers gets tossed around like a beach ball serving as a recognition of whatever the current political sentiment is - example cut out fossil fuels to show we care. In case you have not noticed fossil fuels - Chevron - are doing great and have a high dividend rate (ROI). The job of the people that are the financial POC's for the fund are suppose to run it to create the highest return. However the populace intervenes and pushes for whatever the local political rag is. It is unfortunate that most who rally and sign up for these actions are not the people who receive or donate for the benefits. The other problem is that Mr. Jerry Brown floats a budget that does not fully explain the situation at hand to assist in directing budget to his favorite scientific venture - like twin tunnels.
Yes -the city should be directing part of their employee benefits be paid by the employee - consider it helping the employee in their future retirement planning. And reducing the number of employees would help. Note the other subject going at this time is the hiring of a person to coordinate transgender activity at the county level. We do not need to load up on employees because it will assist in any upcoming political races.


Sorry, but further commenting on this topic has been closed.

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