Understanding CalPERS Liabilities: A Closer Look at Saint Helena's Financial Future
As a candidate for the St. Helena City Council, transparency and fiscal responsibility are key pillars of my campaign. One of the most pressing financial challenges facing our city is the growing unfunded liability associated with the California Public Employees' Retirement System (CalPERS). Understanding these liabilities is crucial for making informed decisions that will secure a sustainable financial future for St. Helena.
What Are CalPERS Liabilities?
CalPERS, the largest public pension fund in the United States, provides retirement benefits to California's public employees, including those in local government, schools, and state agencies. When a city like St. Helena participates in CalPERS, it is obligated to contribute funds to cover the pensions of its employees (note that Saint Helena School District are separate from the City of St. Helena--though both participate in the CalPERS system) upon their retirement.
However, the total pension liabilities—the amount needed to cover all current and future retirement benefits—do not always align with the contributions made by the city. When the assets in the pension fund fall short of the promised benefits, an unfunded liability is created. This gap represents a significant financial obligation that the city must eventually address.
The Situation in Saint Helena
In 2019, St. Helena’s unfunded CalPERS liabilities were already substantial, sitting at $12,481,104. This figure represented the difference between what the city had set aside in the pension fund and what it owed to its employees in future retirement benefits. Fast forward to 2023, and the situation has become even more concerning. Our unfunded liabilities have ballooned to $15,444,121 (UPDATE: new liability numbers have dropped--we are now at 16.5 million), reflecting a 5.49% year-over-year growth rate.
This increase can be attributed to several factors:
More Employees: As the city grows and its needs expand, the number of employees on the payroll increases. Each new hire adds to the pension obligations.
Salary Increases: Regular raises, while important for employee retention and morale, also increase the future pension payouts, further inflating the liability.
Compounding Liabilities: Over time, the liabilities grow as the pension promises accumulate and the gap between the assets and the obligations widens.
Without proactive intervention, this trend is unsustainable. By 2030, if current trends continue, St. Helena could face a staggering $22 million in unfunded CalPERS liabilities. This level of liability poses a significant threat to the city's financial health, potentially diverting funds from essential services and infrastructure projects.
The Path Forward: Addressing the Challenge
To avoid this scenario, it's imperative that St. Helena takes steps now to mitigate the growth of these liabilities. Here are some potential strategies:
Increased Contributions: While challenging, increasing the city’s contributions to CalPERS could help reduce the unfunded liability over time. This would require careful budgeting and prioritization of resources along with additional revenue generation.
Economic Growth: Expanding St. Helena's tax base through smart economic development could provide the additional revenue needed to address pension obligations without sacrificing other essential services.
Public Engagement: Transparency and community involvement are key. By keeping residents informed about the financial challenges and engaging them in the solution, we can build the public support needed to implement necessary changes. Please see my revenue plan here: Revenue Plan | Mysite (barakcitycouncil.com)
Are CalPERS contributions exempt from being a line item on a balanced budget?
Wow! Someone who understands city finances AND is interested in being part of the solution!