The unfunded pension liabilities for nine public agencies within Santa Barbara County total $1.8 billion, creating "solvency risks," according to a recently released county civil Grand Jury report.
"The
county and cities need to make sure they are prepared to fund future pension
obligations when due, without disrupting critical services or over-burdening
their residents with extra fees and taxes," the report states.
Still,
the report states that "there are no immediate threats," and with
proper attention, all cities and the county should be able to deliver the
necessary services to their residents and meet their pension obligations as
they become due.
The
cities of Lompoc, Santa Barbara and Santa Maria have the biggest risks,
according to the report.
Santa
Barbara will pay out $32 million in pensions in 2022, and that number is
expected to reach $38 million in the next few years.
Buellton,
Carpinteria, Goleta, Guadalupe, Solvang and the County of Santa Barbara have
less solvency risks, according to the report.
The
2008 recession hammered the nation and CalPERS, the state's public employee
retirement fund. Pensions are paid out by government agencies and employees,
along with returns on CalPERS investments.
When
those investments tanked during the recession, government entities started to
pile up massive pension liabilities. Public agencies have scrambled to make up
the losses.
Some
of the options to address the problem are outlined in the report.
The
city also could create a Section 115 Trust, which essentially sets aside money
in its own investment plan that could create a greater return than CalPERS. A
trust is a common way that local governments tackle their pension problems.
A
Section 115 Trust would allow the cities to set aside funds when times are good
to be used to offset pension costs when the need to use general funds would
negatively impact the timely delivery of essential services.
The
downside to using a Section 115 Trust, according to the report, is that the
funds may be used only for the specific purpose for which the trust was
created.
Another
option would be a Pension Reserve Fund, which would allow the cities to set
aside funds for specific later needs, but allows the flexibility to divert the
funds to other uses, should the need arise.
None
of the cities is currently using this mechanism, and instead they are relying
on their general reserve funds to be available if needed, according to the
report.
The
report suggests that one of the reasons for the problem is the high cost of
living, and that cities must compete for qualified employees.
To
attract an appropriate workforce, the county and its cities cannot always pay
salaries comparable to other employment opportunities candidates may be
considering, according to the report.
Unlike
the eight cities, the county belongs to the Santa Barbara County Employees'
Retirement System.
Like
CalPERS, SBCERS funds payments of member benefits through a combination of
member and employer contributions and investment income.
The
county's unfunded liability is $1.1 billion. Santa Maria's is $160.1 million,
and Lompoc's is $103 million. Santa Barbara's, according to the report, is $386
million.
The
agencies have 90 days to respond to the grand jury's report, in writing, and
have the option to agree, disagree wholly or disagree partially with an
explanation. The civil grand jury has no enforcement power.
Noozhawk
By Joshua Molina, Noozhawk Staff Writer
December 29, 2021
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