Tony's plan on reforming the City Hall pension system and dealing with the $200 million in unfunded liabilities

By Tony Daysog

We must reform our pension system

In total, Alameda has roughly $200 million in unfunded liabilities. According to Alameda 's most current audited Comprehensive Annual Financial Report, there are roughly $95 million in unfunded liabilities with regard to CalPERS, and another unfunded liability of roughly $100 million for post-employment health care. To be sure, city workers are not going to retire en masse tomorrow, forcing Alameda to cut a check in the amount of $200 million.

So we need not panic + but we need to plan!

The $95 million CalPERS-related unfunded liability is driven largely by the 3% at fifty retirement formula + the first of two sets of formulas discussed above. The first set of formula let's City Hall calculate how much in retirement each worker gets annually via CalPERS. The retirement formula for police is called "3% at 50", while for all other workers it's "2% at 55"; in other words, you multiply the 3% (in the case of police/fire) against the number of years served in Alameda, and that percentage is applied against an average of the final three years salary earned by a worker. So, if a police office worker for 25 years and her or his final average pay amounted to, say, $150,000, then through this first set of formula, this worker's annual CalPERS retirement pay is $112,500 (i.e. 25 X 3% X $150000 = $112,500). Thus, you can see how the "3% at 50" formula is driving many cities' including Alameda dire fiscal situation.

In addition to the 3% @ 50 / 2% @ 55 formulas, there is a second set of formulas, which tell how much the worker and the city contribute toward the CalPERS related retirement. In this second set of formulas, police/fire set aside 11 cents for every one dollar in pay toward their own CalPERS retirement fund; all other workers set aside roughly 8.9 cents for every one dollar in pay toward CalPERS. However, bear in mind that the 11 cents/$1 dollar and 8.9 cents/$1 dollar are **not** the total amount contributed funds toward workers' CalPERS retirement. CalPERS calculates the total ratio that needs to be set-aside for workers' retirement: so, according to CalPERS, Alameda needs to set aside roughly 31 cents for every $1 in police/fire pay, and 13 cents for every $1 in pay for all other words. As indicated, police/fire and other workers are already paying 11 cents and 8.9 cents for $1 in wage/salary respectively, meaning City Hall picks up the difference by contributing 20 cents per $1 salary for police/fire, and 4 cents in $1 in salary for all other workers.

But here's the problem: even as we (City Hall) are legally and contractually obligated to make good on the two sets of retirement formulas described above, for a variety of reasons, City Hall has not been adequately funding CalPERS and post-employment health plans, leading to the unfunded liability of $200 million. Why hasn't City Hall been socking away money? Largely because, right now, City Hall is already setting aside roughly $10 million a year on CalPERS, and a little under $2 million for post-employment health. But we really need to set aside more than $10 million for CalPERS and more than $2 million for post-employment health each year. So, in aggregate, we've set-aside "x", but we really need to set-aside "z", and the cumulative difference between "z" and "x" is $200 million: the issue is that City Hall is not socking away enough out of a concern for having enough money to pay for on-going municipal services.

Compounding the problem: the bulk of the $200 million in unfunded liability is not for current workers, but for workers who are already retired. So, as important as this is, simply changing the two sets of retirement formulas above is not enough to declare victory, so to speak.

The City Manager/City Treasurer/City Auditor are right now putting together a plan to deal with the unfunded liabilities of $200 million in a sustainable manner. I look forward to reviewing their plan; but, in reviewing their plan, I will be clear as to what I, as a Councilmember, expect to see:

. Two-tiered retirement pension system: we must move to a tier-tiered retirement system: Any new police/fire must return to "2% at 55". But keep "2% at 55" in place for current non-police and fire worker, and keep agreed-upon "3% at 50" for current police/fire in place, although put that on negotiating table

. Increase worker contribution toward own retirement, meaning police-fire will contribute more than 11 cents on the dollar they are already contributing, recognizing that the legal maximum is 15 cents on the dollar.

. Increase all other workers' CalPERS contributions above the 8.9 cents per $1 in pay they are already contributing Implement furloughs to generate savings that are then re-programmed back toward retirement plans: for two years, change workers' 4 days-by-10 hour schedule to 4 days-by-9 hour hours, to generate savings over the year of up to 10% of GF wage/salaries expenditures (i.e. $4.2 million to $7.0 million). Because Alameda is already operating on a 4-day work week, and because very few people access City Hall from 8 to 9 am, this two-year furlough plan will not result in a reduction of services to the public; they are not open on Friday anyways.

. During 2 year furlough period, identify City Hall positions that might be combined so as to deliver services in a more efficient manner, such that, **after** the 2-year furlough period, when these targeted positions are combined, we generate savings commensurate to annual $4.2 million to $7 million in savings generated during the furlough period. In this way, City Hall can begin to incrementally buy-down $200 million in unfunded liability.

. "Lock Box": In late 1990s, Al Gore talked about setting aside Clinton's surplus into a "lock box" to shore up Social Security: similarly, City Hall must create a policy whereby a portion of any new money (such as sales tax from the upcoming Target project) must be set-aside to pay-down the $200 million in unfunded liability.

. Be prepared to implement Jerry Brown's recent "50/50" CalPERS retirement, and other features of that plan: by "50/50", Brown meant that if City and bargaining groups don't come to an agreement in five years, cities can unilaterally impose the "50/50", which means all workers (police, fire, others) could be required to contribute up to 14% of their salaries toward retirement, with City matching that with a corresponding 14% of pay contribution (hence, "50/50")

. What is NOT on the table for me: For me, privatizing basic municipal services is not a consideration, as I am convinced we can deal with the immediate and structural budgetary deficit through freezes, cuts, revenue policies, and new retirement formulas.