Back in November, with respect to the hotel discussion, Dan Carson, a member of the Finance and Budget Commission, warned that the city’s pension rates and costs will be greater than projected.
He referenced an October 10, 2016, meeting, where the commission heard a presentation by Bartel Associates, LLC. He wrote that “the Bartel firm’s projections of CalPERS contribution rates for the City of Davis are significantly higher than the assumptions that the City of Davis incorporated into its ten-year General Fund forecast it adopted last summer as part of the 2016-17 budget process.”
Last week, in an email to the Vanguard, Mr. Carson said, “I am very much concerned about the potential impact of pensions and retiree health care as are my FBC colleagues. These issues will be a very important component of a larger and challenging picture for city finances for some time to come.”
In his memo, he warns, “Over the course of the city’s projection period, from 2016-17 to 2025-26, city pension costs would grow from a total of $9.1 million to almost $16.5 million, or an increase over the period of $7.4 million. I estimate this to be an average annual growth rate of 6.8%.”
While the Bartel analysis did not break down the specific fiscal impacts of the projected pension cost increases on the General Fund using various assumptions, he writes, “The General Fund impact is higher when the direct added cost of the estimated 3% increase in payroll costs is included. The total cost of payroll and pension contribution rates together could increase General Fund costs by $1.2 million annually in 2017-18. By 2025-26, the end of the city’s projection period, the total cost of payroll and pension contribution rates together could increase General Fund costs by as much as $10.7 million annually, by my estimate.”
These are just the hit for pensions. That does not include the increased costs to meet infrastructure needs.
And, as Dan Carson warns in his email, “of course the numbers could be better or worse than the actuary has estimated. They are just that, estimates.”
It was a year ago when the Vanguard and others were very concerned about the council’s decision to give employee groups a small COLA (cost-of-living-adjustment).
As Dan Carson puts it, “[D]ecisions impacting pay have a big dual effect on the city’s General Fund condition — the added cost of the pay itself and their secondary effect on increasing pensions.” He said, “The city over the long term will face serious consequences cost pressures here and not just from pensions per se.’
The city is faring better on retiree health. He explained that “we have built money into the budget and are executing a plan to pay off those liabilities.” He adds, “Here again though the projected paydown could be affected if the return on investment of monies set aside for this falls below projections. We are not out of the woods here, so I supported the idea the council adopted of using surplus GF cash to accelerate this paydown.”
Dan Carson once again notes that “these costs aren’t our only problem. We still have some big bills coming on infrastructure as you know very well. This will be a big additional cost pressure on the general fund.”
One piece of good news is that Dan Carson still believes that “revenues could be better than shown in the last set of official projections.”
He said, “The 2016-17 numbers city staff used were reasonable and a big change in approach that I have advocated for some time as you know. However the projections used in the out years of the ten year projections are still quite conservative and out of line with historic performance by the city, the region, and the state.”
He notes, “The recent turnover of South Davis properties for example will give us a nice property tax bump. So we may have more money to pay our unfunded liabilities than we thought.”
In his memo, though, he warns, “It is unlikely that the current city revenue stream can keep up with these pension and payroll cost increases and other costs the city will face to maintain high quality city services. While it should not be the sole approach the city takes to addressing these fiscal problems, city support for economic development projects, such as the two pending hotel proposals, could generate additional revenue that could help the city meet its future obligations.”
The city will weigh in tonight on the Marriott Residence Inn project slated for the Mace/Second Street intersection and, in two weeks, will decide what to do about the more contentious Hyatt House project.
Dan Carson in his memo acknowledged, “As you deliberate about these projects, you will have to weigh the potential fiscal benefits to the city against other considerations, such as your land-use policies and the additional set of criteria you have adopted for such projects.”
—David M. Greenwald reporting