City’s unfunded liabilities set to rise

Due to incorrect assumptions by the California Public Employees Retirement System about the mortality rate for public sector workers, Gilroy will pay more money out-of-pocket toward employee pensions beginning in 2016.
The estimations, which were updated and corrected in February after a study was completed, will also increase Gilroy’s unfunded liabilities for employee retirement plans, according to Finance Director Christina Turner.
“We’re looking at losing millions out of our General Fund—2.5 percent—sucked up by a couple of bad CalPERS assumptions that got fixed,” Councilman Perry Woodward said at the June 2 City Council meeting where Turner presented her report. “Now we have to catch up for those bad assumptions.”
During fiscal year 2017, Gilroy will need to pay an additional $1 million in contributions to employee plans, Turner’s preliminary estimate show. The estimated costs will top $895,000 through 2010, and the money will come directly from the General Fund—which pays for everything from parks maintenance to police and fire protection.
Gilroy can choose to follow CalPERS’ recommended phase—in of the cost increases over five years, or opt for a more aggressive approach during council’s budget sessions next fall. Woodward explained he’d rather see the City pay off the balance sooner, as opposed to paying what he likened to paying the minimum balance on a credit card.
“I’m in favor of paying it down. I don’t like not paying bills,” Council Member Cat Tucker added.
Currently, Gilroy’s unfunded liabilities for public safety employees are $22.1 million and $15.2 for all other City employees. Combined, Gilroy’s unfunded liabilities are $37.1 million, roughly $1 million less than the City’s entire General Fund.
According to Turner, Gilroy has proactively implemented its own reforms to reduce the cost of supporting public employee pensions. Newly hired public employees are paying more toward their retirement costs, reducing the amount the City pays to CalPERS over time, she added.
Regardless of how Gilroy minds its own store, Mayor Don Gage is concerned the growing statewide unfunded liability problem will reach a crisis point—much like the drought.
“What I see coming is just like with what’s going on with water,” Gage said. “Santa Clara County has $800 million in unfunded liabilities, and I envision the state wants to share the burden across each city. At some point in time, something’s going to hit the fan (in California), and the state is going to look to everybody to solve the problem. We’re in for worse hell than people think.”
Woodward suggested City Council postpone making a decision until CalPERS sends its annual bill this fall, and his motion was unanimously approved.