Santa Barbara Grand Jury Issues Key Report on Pensions
A new report from the Santa Barbara County Grand Jury warns that many public pension plans in the county are facing significant liquidity and solvency risks, and that new policies may be required to keep the system sound.
The Grand Jury examined the county’s nine main public pension systems: the County of Santa Barbara Employee Retirement System (SBCERS), which is not part of CalPERS, and the public pension plans for Buellton; Carpinteria; Goleta; Guadalupe; Lompoc; Santa Maria; the City of Santa Barbara; and Solvang.
For the most part, the Grand Jury found that risks in SBCERS are “moderate and well managed.” But for the eight municipalities whose employees receive their pensions through CalPERS, there are signs of trouble ahead.
The Jury found the highest risks in the plans of Lompoc (six pension plans), the City of Santa Barbara (four pension plans), and Santa Maria (seven pension plans), which are the largest in the County. It found moderate risks in Guadalupe (five pension plans) and Solvang (three pension plans). It found minimal to moderate risks in Buellton (two pension plans) and Goleta (two pension plans).
SBCERS manages a total of 15 plans. The eight cities manage a total of 32. Among those, the highest risk plans were Carpinteria Safety; Lompoc Safety; City of Santa Barbara Miscellaneous; City of Santa Barbara Fire and Police; and City of Santa Maria Miscellaneous. Together, those plans comprise 75 percent of municipal liabilities in the county, according to the Grand Jury.
Another 18 municipal plans were found to be at moderate risk, while the risk to eight others was deemed “minimal.”
The Grand Jury also concludes that future shocks to the system, such as falling tax revenue or a drop in CalPERS’ investment returns, could exacerbate the situation and necessitate immediate corrective measures.
Such measures could be to reduce salaries and other nonpension benefits, to raise employee and employer contributions or to cut benefits, apply fiscal measures to fund higher employer contributions, as well asstart new negotiations with labor unions to raise contributions from employees, or to otherwise modify benefits not covered by the new PEPRA Law of 2013.
The Grand Jury has recommended that the eight municipalities reassess capital spending, employer/employee contributions, taxes and staffing to identify potential areas for savings and revenue gains. They should then issue public reports, to be discussed in open session, on the findings.
The Grand Jury also made the following noteworthy findings:
• The 2013 California Public Employees' Pension Reform Act (PEPRA) has had modest, positive effects on the solvency and liquidity of Santa Barbara’s pension systems. However, more action is likely needed, especially in the event of additional fiscal shocks.
• In Lompoc, Santa Maria, and Santa Barbara City, solvency risks are high in the pre-PEPRA plans. In Lompoc and Santa Barbara, liquidity risks will require employer contributions of 40 percent (Lompoc) to 50 percent (Santa Barbara) for the next 12 years or more.
• Santa Maria’s comparatively low General Fund revenue places it in a particularly precarious position. And, while the city projects no years of negative cash flows, this would change if CalPERS’ investment returns fall below projections. Managing the risk requires high total employer contributions for at least the next 16 years. A recent effort to end employer contributions in Santa Maria “moves the burden of repaying its unfunded pension liabilities from the City to its active employees.”
• A cut in CalPERS' discount rate from 7 percent to 6 percent “would push the funded ratios of several municipal systems close to 0.5 and might impose further increases in the employer’s contributions in Lompoc, in the City of Santa Barbara and in Santa Maria.”
• The county’s largest municipal plans probably won’t be able to apply CalPERS’ revised amortization schedule of 20 years to all of their unfunded liabilities without new employer contributions. This would pose enormous difficulty for Lompoc and the City of Santa Barbara where employer contributions are already high.
The County Board of Supervisors and the city councils of all eight cities must respond to the Grand Jury’s assessment within 90 days.
Read the entire report here.