San Luis Obispo City staff will hold an informational session on Thursday, Oct. 5 about the City’s projected $8.9 million budget gap and potential solutions to maintain a balanced budget in the future.
Members of the public are encouraged to attend the event, which will take place from 6:00-8:00 p.m. at the Ludwick Community Center (864 Santa Rosa Street). Staff will remain at the Community Center following the meeting to answer questions.
Like 3,000 other members in the state, San Luis Obispo – also a member of the public employee pension fund CalPERS – is facing significant financial challenges ahead due to increased pension costs. A variety of factors have contributed to the increased costs, including the Great Recession market crash, retirees living longer, fewer employees paying into the fund, and more conservative investment assumptions.
For San Luis Obispo, annual costs for CalPERS will more than double in 10 years, from $7.8 million in 2014-15 to $19 million in 2024-25.
“The City is committed to being financially responsible, and to providing quality services to the community,” said Assistant City Manager Derek Johnson. “We are also committed to the employees providing those services.”
“Because we are legally required to meet the CalPERS costs, we must find ways to offset those increases,” Johnson said. “By acting now, before the gap reaches to its fullest state, we can be more strategic in adjusting our budget. The City of San Luis Obispo has a long history of managing finances using best practices and this history will serve our City well given the current and forecasted challenges.”
The $8.9 million reduction target represents $7.5 million from the General Fund and $1.4 million from the City’s Enterprise Funds, including Water, Waste Water, Transit and Parking.
City staff has begun planning for the development of a Fiscal Health Response Plan to outline solutions to the pension challenge. Components of the Plan could include operational reductions, new ways of doing business, exploring revenue options and employee concessions.
“For example, we could identify cross-department efficiencies, or begin to charge for some City services that are currently free or reduced and discuss potential changes in compensation with our valued employees,” he said.
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.
“By taking proactive measures in recent years, we’ve improved the City’s fiscal forecast and are better off for it,” said Johnson, adding that the City has “been here before, worked through it with staff and the community, and this time will be no different.”
October’s informational session will feature an overview of the problem, and the process identified to arrive at a Plan for solutions. Members of the community will be invited to ask questions.
At its November 7th meeting Council will consider the process for developing a Fiscal Health Response Plan. Following that, on December 12th, City staff will present foundational information for Council feedback on the components of a Fiscal Health Response Plan. Eventually, the City will consider for adoption a Fiscal Health Response Plan in April 2018, which will be applied to the City’s 2018-19 Supplemental Budget to be adopted in June 2018.